Later-Stage Pivoting: Preemptive Turnaround Management?


by Jesse Garcia

The challenges of a later-stage pivot are BIGGER than those of an early-stage pivot.  The stakes are bigger, and a company that is achieving scale has already foregone a significant amount of flexibility and nimbleness.  More than ever before in the company’s life, innovation that is more than incremental becomes very challenging.
 
Chegg, the online textbook renting platform, is currently undergoing a late-stage pivot that builds on its core business into an expanded market opportunity with a new business model.  Since the textbook renting business is capital-intensive relative to other online businesses, the company faces unique challenges in the pivot process. 

While pivoting at a later stage in the development of a tech venture like Chegg is not exactly a turnaround situation, turnaround opportunities can lend some important insights into the challenges encountered in such a situation and the expanded skill set that a manager may need to be successful. 

Length of the Runway
Like in any change situation, the amount of time available to execute a late-stage pivot is very important.  Usually, the amount of cash available to support the operations of a business is the first issue that comes to mind when thinking about the amount of time left before a company has to shutter its doors.  For a tech venture that has decided to do a late-stage pivot, having enough cash to pivot will most likely mean needing to raise more money.  For many reasons, including the capital intensiveness of the business model or how leanly a venture has been run, a company may not have the cash resources to execute a late-stage pivot.  Given the heightened risk profile of the company, raising money at this point will likely involve a down round in terms of valuation.  In turn, a down round involves a slew of headaches that the company founder / manager will have to grapple with.

Operational and Financial Leverage
Leverage can severely complicate a late-stage pivot.  A company that has crossed the chasm and has begun to scale the business, such as Chegg, has likely started incurring fixed costs that enable it to benefit from economies of scale.  Also, it may have already raised debt financing.  Whether operational or financial in nature, leverage limits a company’s nimbleness and exacerbates both the company’s cash needs and the potential decline in valuation during a pivot.  Hence, undertaking a late-stage pivot requires a management team with both conviction and humility. 

Re-sizing and Re-alignment
A company that has begun scaling has likely achieved both product-market fit and, to some extent, alignment between its strategy and organizational structure.  A late-stage pivot, if large enough, implies taking a few steps back and unraveling some of the progress made along these lines.  This may involve layoffs and new hires, even at the management level, asset sales, and significant resource re-allocation.  Managing the re-sizing and re-alignment of a company while ensuring that it is moving ahead fast enough on the new opportunity can be very challenging, requiring a talented management team.

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