Shifting Direction -Knowing When To Pivot In Your Business

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The ability to pivot and knowing when to pivot, might be one of the key skillsets that every business owner needs to develop. Pivot at the right time, and you look like a hero. Pivot at the wrong time, and you could be out of business.

Where I see business owners get in trouble is that they fall in love with concept or idea of their business, and have blinders on to what is going on around them.

Over the past 20 years of being an entrepreneur, I have had to pivot several times. In some cases those were massive pivots (going from a drop shipping model to importing our own product), or more subtle directional changes like we had to make recently with the pet brands (which I will share below).

Seeing Changes In the Landscape

When my business partner and I decided to get back into the e-commerce space 3 years ago, the landscape was drastically different. Our first acquisition, Vet Naturals, was a pet supplement brand that was primarily sold on Amazon. It checked all the boxes of what we were looking for in a brand: solid margins, a passionate customer base, a lot of positive reviews, and the ability to create recurring revenue. At the time, there was competition in the space, but it was still scalable.

Since acquiring this brand, we started to notice some significant changes in the marketplace and competitive landscape (some good, some bad):

• Some big exits — brands like Zesty Paws and Pet Honesty (both companies I knew the owners of) had big exits, and people started to take notice that pet supplements were in high demand. Suddenly there were multiple brands popping up each week, creating a lot of “noise” in the marketplace.
• Covid hit — this was both good AND bad. On the positive side, demand went through the roof since everyone was adopting pets and spending more time at home. On the negative side, manufacturing went from 6 weeks to sometimes 20 weeks. When you combine high demand with significant delays in manufacturing, it makes it nearly impossible to forecast inventory. This led to some products being out of stock when we needed them the most.
• iOS data update — Whatever your opinion is on data privacy, the iOS update definitely had an impact on small businesses and advertising. I wrote an article about it on my blog The Shifting iOS Landscape: What It Means for E-commerce, but the short version is the Facebook algorithm became significantly less efficient and cost-effective. The lack of data meant that conversion rates went down, while the cost per click went up. This led us to Pivot #1 below.
• Owning 1st party Data became more important — This coincides with the iOS update, but as privacy concerns grew, it became obvious that owning the 1st party data was becoming more and more valuable.
• Economic changes — while the pet space has proven to be pretty well insulated from recessions (here is a great article from Nasdaq.com about the pet space), the current state of the economy has a lot of industries trimming overhead costs and operating as lean as possible. We made a conscious effort to do the same.

Time to Pivot

In the past two years, we have made some significant pivots to the business, to both protect our investors and to also ensure continued growth of the brands.

1. Turning expenses into profit centers — we looked at operational expenses that didn’t directly have a revenue stream from them, and looked for ways to change that. For example, we are using a 3rd party customer service team. While it may seem like common sense, we didn’t have a process in place for them to be upselling customers who were calling in with questions. Within a month, we had them generating enough revenue from inbound calls that they were no longer an expense but actually profitable. We also looked at our internal team and started asking the question: What is one thing you could be doing each day that would help generate additional revenue? The answers were overwhelmingly positive, and easily implementable. (Quick Tip: take a look at your logistics costs… make sure that they are using the right size boxes, and that they are using the most cost effective shipping options. We were able to reduce our shipping costs by several dollars per package by doing a deep analysis.)
2. Increasing our Average Order Value — with rising ad costs, and less than accurate targeting from the ad algorithms, we needed to increase our average order value in order to make paid ads make sense. In order to do this, we went to bundles. We started sending all of our ad traffic to bundles so that someone couldn’t buy just one. This increased our average order value and got customers accustomed to buying in bulk. Our shipping costs also decreased since we knew we could fit several bags into the same flat-rate box.
3. Traffic Diversification — Sometimes you have to learn the same lesson twice… unfortunately that is the case for me with this one. In the business that I sold several years ago, we were so well diversified in terms of traffic that no single source was more than 19% of the business (that included FB and Google ads). This meant that even if the ad platforms changed, or we suddenly were kicked off Amazon due to a TOS change, the business was insulated. I apparently forgot this lesson, until I was forced to relearn it. We immediately started researching other marketplaces we could be on, affiliate networks we could tap into, expansion of email marketing, and building out influencer networks. While we are not as diverse as we should be, we will be by the end of the year.
4. Own the traffic — probably the biggest pivot we made in the business was shifting away from buying more physical product brands, and buying up blogs and media sites. If we couldn’t rely as heavily on paid traffic, why not own the traffic. Our next two acquisitions were blogs, Dogvills and Technobark, which instantly gave us several million eyeballs from our target audience. Not only do the blogs generate their own revenue, but we can cross-promote and retarget our physical product brands at the same time. Since then, we have acquired several more media sites and we are quickly becoming a media company that also has physical product brands versus a physical product company that has to go find customers.

The lesson I hope you take away from this article is that regardless of what industry you are in, you need to be hyper-vigilant of changes occurring in the marketplace and where you might have to pivot next. What