If you watch a sailboat, it rarely goes in a straight line for very long. It tacks from side to side as it pursues a course. The destination does not change, but the path to get there is complicated and influenced by invisible forces like wind and currents. Similarly, companies face market forces and make course corrections all the time. However, we reserve the term ‘pivot’ for when the destination changes, or the course correction is significant. Early stage businesses tended to pivot more frequently than later stage business, but we are in a very tumultuous time with AI disrupting many business strategies. Pivoting is not just for early stage businesses anymore. Now, more than ever, CEOs of companies in all stages of business need to be cognizant of changing business conditions and the need to make significant course corrections. Products are rapidly becoming obsolete, and the moats that protected entrenched competitors are quickly being drained as the barbarians storm the gates.
CEOs often struggle to acknowledge the need for a pivot. While they can see the handwriting on the wall, they often persevere with unbridled optimism to pursue the path the company is currently following. There is a certain ‘never give up / never give in’ mindset that keeps some CEOs barreling down a doomed path. For others, the reticence to pivot is spurred by a reluctance or embarrassment to acknowledge that they may have led the company astray and now want to change direction. In many cases, the CEO simply is uncomfortable telling the board how they actually feel about the business and recommending a pivot. However, the First Law of Holes as cited by Will Rogers is “If you find yourself in a hole, stop digging.’
It takes courage to recognize that your company is in a hole, and to do something about it. A high-functioning board will not only welcome the candor, they expect it. Unfortunately, not all boards are ‘high-functioning.’ Often, institutional investors made their investment based upon a thesis or business strategy, so telling them the business is headed for the rocks is tantamount to telling them that their thesis was flawed. For the investor-board member who promoted the investment to their partners and investment committee, a pivot can be problematic, and unfortunately they often let that be known to the CEO in a manner that discourages the CEO from acting on their instincts. However, viewed differently, the investment thesis was a concept or hypothesis while the actual business is the laboratory to prove or disprove the thesis. Investor board members need to stay focused on the business outcome and success, not how closely the business hews to the original concept.
In a recent LinkedIN post, Gregory Fine observed that pivots are not a failure of leadership. They are the actual job of leadership. Just as the captain of a sailboat has to know when to tack and how to optimize the course to the destination, business leaders are expected to do the same, even when it means recognizing that the ship is headed to the wrong destination and a completely new course is required.
The board of directors should encourage thoughtful continual evaluation of the strategy of the business. Their role is not to simply sit in judgement of the CEO. Rather, their role is to work with the CEO to bend the course of the business toward success. They need to be the CEO’s partner, and that may take the form of identifying blind spots, or assisting the CEO to formulate a more perfect strategy, even if it requires a pivot. The board should ask the hard questions, but they also need to be prepared to hear honest answers that may be disturbing. A CEO should never feel afraid or intimidated to tell the board that the business is headed in the wrong direction and needs to pivot. It is more embarrassing to be the person that stayed the course and ran the company into a brick wall.
An important element for the CEO is to be thoughtful about the market conditions, and present a view of where the company should be headed and what the pivot looks like. They should bring a solution or recommendation to the board, not simply present a problem. In an effective board scenario, the board and the CEO will work together to evaluate the proposed new direction and the steps to initiate the pivot. The CEO needs to know when to ‘stop digging,’ and the board needs to be ready to provide a hand to help get the company out of the hole.