– Elchin Aliyev, Chief Executive Officer of ENESTECH Software, about the importance of pivot planning for SaaS and possible mistakes to avoid during the process.
“It is not the strongest of the species that survives, nor the most intelligent; it is the one most adaptable to change.” This is what Charles Darwin said almost 200 years ago. And now, COVID-19 proves these words once again: the pandemic was easier on those able to adapt quickly or who’d foreseen an emergency supply in case of a crisis.
In this article, we’ll talk about pivoting and mistakes that can undermine it. I will draw on experience of ENESTECH Software and on lessons learned during the four years on the market. This information will come in handy for product managers, business development managers, and leaders of software development teams.
From this article you will learn the following:
- What a pivot is, and when it is needed.
- What mistakes companies make during the pivot.
- How to persuade investors to allocate resources for a pivot, especially if the business seems to go well.
Pivot and COVID-19
Pivot is a fundamental change in a company’s direction. Scale of pivoting varies: for example, Nokia started as a pulp mill, and now we know it as a mobile phone manufacturer. Throughout its history, Nokia changed its vector of business several times: it engaged in the energy industry, tires and cables, and finally — telecommunication devices.
2020 has pushed many companies towards strategical turnarounds. As a result, Airbnb added video tutorials into ‘Experience’ category. Spotify started streaming podcasts along with music. BMW is now actively sponsoring online esports events, as all traditional sports tournaments were being canceled, and the brand needed new channels to promote itself.
In fact, a pivot can be a change of a targeted market or a niche, a new product launch, or a change of the target audience. Sooner or later, all companies face a need to pivot after all. Here are some errors to avoid when this need becomes extremely urgent.
Mistake #1: Too late to pivot
Simply put, every tech company should have a pivoting plan in place, and preferably — a pretty detailed one. Most executives ignore its importance until a crisis is on their doorstep or until their business starts losing momentum.
We develop SENET, a SaaS for LAN-centers and e-sports arenas, and we were in search of new income streams long before COVID-19 and quarantine measures. But it was global lockdown that’s pushed us to intensify our searches: when internet cafes and gaming lounges are closed, they don’t need automation platforms.
When the pandemic started, our reserve funds kept us afloat. We used them to boost development of new features and to pursue new monetization models. In 2021, our customers are gradually getting back to business, and our initial revenue streams are recovering with them — all while the new ones are thriving. We try our best to adapt SENET for educational institutions as a safety valve in case LAN-centers go through crisis again.
However, a crisis should not be the only reason to think about prospects of pivoting. Here are just a few red flags indicating that a company needs to pivot:
- A product does not fit the market. Your hypothesis was not confirmed, needs of your target audience changed, market & competitor research was not conducted thoroughly.
- A new competitor emerged.
- Low returns on investments.
- Things are going well, so there’s no measures taken to scale the product.
The last point here is a common trap. When a product sells well, executives risk to get bogged down in details of day-to-day operations. Rather than elaborating on back up plans from A to Z, team spends time improving daily business processes with disregard to new opportunities for their product.
In such cases, ask yourself a “What if?” question. What if our industry sector collapses tomorrow? What if a powerful competitor appears? What if our technology is no longer innovative?
From the moment of product launch, I recommend that business development managers start allocating small portions of their resources in advance to research possible pivoting. You can start with the basics, namely:
- Study competitors, their target audience, and monetization models.
- Identify strengths and weaknesses of rival products.
- Identify new potential markets: what part of the audience can you take and in which particular country?
- Compose a roadmap of product development with all new features and possible challenges listed.
Your research should be well-founded and supported by facts, so that your team, investors, and partners are ready to support pivoting at any time.
Mistake #2: Inadequate pricing
Your product can be the best in the world and very useful, but what’s the point if the market can’t handle your price? You can boast as much as you want, but if the price is too high, sales team will only close one or two deals. And if you set the bar too low, returns won’t be high enough to cover your expenses.
For massive sales, you must thoroughly research the market and make sure that the price of your product matches the needs of your target audience.
When we take SENET to a new market, we conduct hundreds of interviews. We invite people from e-sports, local businesses, education sector — to talk about our product. They, in turn, share stories of their business, their expenses and monetization models, staff, plans for the future. At some point, our interviewees start telling us about their pains and how they think SENET might help.
To form an adequate price, we directly ask about their financial performance and how much they are willing to pay for SENET. At the same time, we evaluate prices of our competitors on this new market, estimate average daily number of gamers, average duration of gaming sessions, calculate average rent for a venue, local wages, and costs to upgrade PC hardware. As a result, we get a grasp of net profit of our potential client.
When we set up the price, our task is to show our customers that:
- Expenses on SENET do not exceed 3-5% of their net earnings.
- SENET provides a solution for their pain points.
- Expenses on SENET will return multiple times during the very first month of use.
Once the price is set, we need to establish effective sales procedures. For example, in one particular region four managers bring 50 sales per month. When you go to a new market, would it be possible to sell as much with only two managers? To answer this question, conduct a research on market capacity at the stage of interviews.
Mistake #3: Picking the wrong niche
Sometimes small companies pivot into a niche with huge world-class competitors. Don’t you think it is useless to enter a market where Oracle enjoys total domination? Smaller businesses may be driven by an ambitious idea to make something better than Oracle, but while they’d be spending loads of money and time to do so, the giant will make a huge leap far ahead.
Rather than chasing the clouds, it is better to concentrate on specific software features to hit blind spots of your competitors. To do this, you need to perform three steps:
- Speak with users, current and potential. Tell them about the product, even if it hasn’t been released yet, ask about possible bugs, troubles they encountered, and ways to solve them.
- Monitor targeted search queries on the Internet. All of us usually turn to Google in hopes to find a solution. If your target audience needs help, you will learn about it from social networks, forums, and blogs.
- Track your competitors’ activity. They may have already completed the first two steps and are now testing a new hypothesis.
When following the competitors, it is important to watch how they interact with customers, what values they sell. At the same time, you might also notice features that your product doesn’t have — it is important as well. But don’t get too caught up on that, or you’ll encounter our next mistake.
Mistake #4: Too much focus on features
A Ferrari has four wheels and a steering wheel. A Volkswagen Beetle also has four wheels and a steering wheel. Both have similar features, but their value is fundamentally different. The Italians sell premium quality, comfort, and design. Beetle sells the ability to go from point A to point B at an affordable price.
Currently, we are working on a built-in tournament module for SENET. It is a comprehensive product that will make it easier for LAN gaming centers to host local e-sports tournaments for amateur players. The platform is being developed in collaboration with WePlay Esports and enables integration of local tournaments into a global ecosystem of e-sports leagues.
At the same time, there is another player on the market — Challonge. Casual gamers use it to create simple tournament brackets for their friendly matches. Both products, SENET and Challonge, can be referred to as “tournament platforms”. However, keep in mind that scale of both services and their additional value have significant differences: SENET still qualifies as a management platform for e-sports venues, and tournaments are just a part of a comprehensive esports solution.
When it comes to competitor comparison, it goes without saying that functional advantages of software are important. But needs of the target audience should always come first, as users may prioritize service above features, or software interface, or easy installation. In other words, values over features.
To understand what value competitors appeal to, my team and I simulate a standard customer journey. We try to find out how they react to a phone call, to an application left on a website, to a direct message. How they act if we do not reply to messages: whether they follow-up or simply abandon the deal. What exactly they say about their product and how subtly they lead us on to close a deal.
At the end, I draw conclusions on whether I, as a SaaS user, would want to make a deal with this competitor. For how long? What can ENESTECH learn from them and what mistakes should we avoid?
Mistake #5: Ignore cultural specifics of the market
This is a classic sales mistake that many people forget about. You need to be certain who are decision-makers of your industry and who has influence on them.
For ENESTECH Software, the audience comprises owners of internet cafes, gaming lounges, and e-sports arenas. When we start working on a new feature for SENET, we focus on pain points of such business owners: how to effectively manage cash flow, provide quality service, reduce downtime of gaming equipment. But when we decided to place ads within the product, we realized that here we have to target a completely different audience — gamers or patrons of internet cafes. Meaning another round of deep interviews, research, and elaboration.
To bring SENET into education sector, we need to start conversations with faculties of university e-sports programs. We talk about SENET as it is, to find out whether it fits educational institutions. If it does fit, sometimes institutions manage to allocate budgets to test the product without any major changes. That’s what we’ve encountered in the United States. At the same time, we are in progress of customizing SENET exclusively for colleges and universities, so that it covers their needs to the fullest.
Disregard of cultural specifics of new markets can undermine pivoting to a great extent. For example, while preparing to enter the Vietnamese market, we learned that most of the population there uses their own social network — Zalo. So, it makes no sense to try connecting with clients via WhatsApp, which is a widely used messenger for us. Even if somebody has WhatsApp installed, most likely, they will not answer. Same thing in Thailand — they use Line for quick messages, so we learned how to use it, too.
The most memorable experience we had in Turkey. The name of our product — SENET — elicited smiles and bewildered looks during our first interviews. Later we found out that ‘senet’ in Turkish means ‘debt obligation’. Not the best label for our product, right?
At first, we thought people would get used to it, but eventually decided to change ‘SENET’ to ‘ENES-T’ for the Turkish market. We had no troubles with naming ever since, especially because Enes is a common name in Turkey and in the countries of the Middle East.
Such cultural discrepancies affect business performance of your product as much as bugs do. That is why we keep a multinational team at ENESTECH: only a native speaker can truly understand needs of a particular region and specifics of local business behavior. When it comes to new markets, I recommend using services of local business consultants — the more of them you have the better.
Here’s my summary of the above: the more thoroughly you research the market, the more you understand needs and demands of potential customers. If you manage to notice the tiniest weaknesses of your competitors, you’ll multiply chances of your product to succeed. To rephrase the most popular book of the world, ‘In the beginning was the Research, and the Research was the God’.