Fake it, then break it
Pivot-faking is damaging innovation in the same way that forgeries in the art world create hype, but fundamentally denigrate worthwhile and valuable work.
Pivot-faking happens when companies fail to evolve or improve for such a long time, or suffer from disastrous leadership, that iterative change cannot transform failure to success. Instead, intellectual property in one category masquerades as something it isn’t in order to increase recognition and audience engagement. This often happens in tech industry, as these businesses try to drive a higher valuation multiple from being seen as something more modern, innovative and profitable.
“We’re the AirBnB of X”, “AI-driven” and “SaaS-based” are buzz-phrases that ring around The Valley, Silicon Roundabout, or whichever Tech Hub you follow.
Of course, a vast number of pivots are true and many companies actually do transform their commercial model or honestly revolutionise their deployment and support processes — an even bigger number, in my estimation, don’t.
Before looking at how to detect these forgeries, it’s important to understand the history of the phenomena and why it becomes a necessary evil for some businesses.
The problem is popularity. In any type of business or art form, there is the age-old battle between trending popularity and niche interest. Of course, sustained popularity is not a constant; different technologies, media and even artistic schools can hold the attention of their target market for varying amounts of time, based on a number of factors. Quality, originality, intellectualism, competition, societal change and even environmental concern can result in movements, trends and their products falling out of favour with the public quickly or slowly.
For example, at the end of the last century, radio and audio broadcasting seemed to be dying out in favour of television and film, with many predicting its demise when challenged by the likes of MTV, rolling 24/7 news and other audiovisual services. Video did not kill the radio star, however, as innovation in audio recording and broadcasting brought us DAB, Audible, Spotify, Podcasts and Clubhouse. Services that are remarkably similar in concept (and often content) to their aged source of inspiration, but feeling very modern and innovative. Audiences have never been greater for wireless listening.
One of the reasons why this innovation worked is because it was based on incredibly solid foundations of user and market need. People need and want to consume audio-only content, but just in a more convenient way with greater choice. This didn’t require a “pivot”, just good innovation and an unbiased understanding of user and market needs. These improvements increased the value and diversity of that market.
Jumping the shark
The American TV show Happy Days brought a new phrase into our modern lexicon — “jumping the shark”. In this scenario, a ratings plateau had been reached with TV audiences, so producers felt that they needed to do something special or different to motivate an increasingly disengaged audience. It was decided that a popular character, Fonzie, would perform a scene where he would literally jump over a shark while surfing in a leather jacket.
The scene became famous, generating some fresh interest, but ultimately did not save the show from its demise. Afterwards, many critics and viewers saw this gimmick for what it was — a desperate act by a now-dated show that actually devalued much of its actual achievements. Much later, another cult comedy Arrested Development, parodied this scene with the same actor, Henry Winkler, jumping over a toy shark in one of their episodes, which was in line with this show’s meta humour.
Getting Sassy
These two examples show that true evolution can be achieved on top of a solid foundation and intelligent strategy, but trying to force popularity with shallow “publicity stunts” is easily detectable in the hands of an intelligent audience and, furthermore, it reeks of desperation.
As I mentioned at the start of this piece, there are various terms associated with increased business valuation; SaaS, AI and Blockchain — all of which are fantastic concepts when applied appropriately to product technology. However, using these terms to artificially inflate valuation without any tangible difference in a product, belittles those industries. Phrases like “AI-powered” or “Cloud/SaaS version”, when used to describe a product that was previously none of those things, should result in care when externally scrutinising these “enhancements”.
However, these marketing tactics are often not used by businesses for the purpose of growing addressable market or wallet share, but rather for the artificial inflation of their valuation multiple when approaching a time of potential merger or acquisition. However, thankfully most businesses; VC, PE or otherwise, considering the investment in or purchase of another company or its intellectual property will perform enough due diligence to detect these types of illusions, which in many cases are simply lies and superficial forgeries.
Breaking the bank
There is also a warning to the business owner trying to use these tactics to sell their business or generate investment. These risks come from two symbiotic areas — product and market.
When you’ve spent time and investment building market awareness and specific messaging, morphing those core values into something else can undo months or even years of hard work if your strategy is not built upon solid market intelligence. Sales prospects and analysts become confused about what you’re trying to achieve and the negative press can damage your brand. In this case, the best outcome is loss of new business revenue and market confusion, worst case you also churn your current user base.
Most product companies have a roadmap. Smart ones build that roadmap based on a combination of profitability and growth projections, customer feedback, competitor analysis, latent needs of the market and evolving technology. This means that the product naturally aligns with the needs of the business and the customers it serves. However; start infusing unfounded speculation and misaligned strategy with that roadmap and you end up owning a product with increased technical debt that is hard to innovate and disappointed customers with unfulfilled wishlists.
The swelling graveyard of failed product companies teaches us that increasing costs and falling revenues can never be sustained indefinitely.
Smoke and mirrors
In this final section, I will offer some advice for detecting over-hyped forgeries and illusions.
- Ask more than one expert — I am regularly asked for consultations by agencies where market data and professional opinion is sought on phone calls. These usually last around an hour and are usually held between buyers/investors and independent industry experts with direct or indirect experience of a company and the technology involved. They’re intensive to take part in, but extremely valuable and a great source of evidence.
- Ask the communities — Every industry and technology has at least one form of community or forum, where new products and industry trends are discussed. These could take the form of an official company feedback portal, but these are often moderated by staff or management. There is often a range of unofficial forums where companies concerned have little or no control over commentary and where you will often find the greatest honestly.
- Review the reviews — obviously customer reviews are important, with many different mediums for logging feedback. Some are trustworthy, others are not. Remember, it’s possible for companies to pay for reviews, but often those with the most detail are reasonably trustworthy.
- Speak to insiders — former staff members (outside of contracted gagging orders), customers (current and churned) and other business partners in the industry will give you feedback. However, it is worth bearing in might that some may have a vested interest in a positive review or be biased negatively based on a previous poor experience or grudge.
- Use the product — this can be challenging, especially if one company with little experience of a specific technology buys IP from another. Being able to stress-test the product and confirm its suitability for the market is an essential step in the process of assessing viability. If you lack the internal resource to do so, an external consultant is a worthwhile investment, considering the risk of financial loss involved.
- Cover yourself — this goes without saying, but any banker and legal team worth their fee ensure that there is suitable coverage for due diligence and pre-termination analysis in any agreement to ensure that you “got what it said on the tin”. The excitement of a term sheet is enough for many entrepreneurs to stretch the truth, sometimes too far.
If you’ve found this article useful, please let me know. Likewise, if you need help with any of the above, I’m always keen to refer my industry colleagues for projects if I’m not able to help myself.
Good luck detecting those fake pivots and watch out for the sharks.
