Sellead is not only turning normal education consultants into top sales leaders around 40 countries, but also providing a complete solution for the international study-travel industry. But how did they find out it was time to pivot? In this guest blog post, Ricardo Lemos (Founder & CEO of Sellead and Graduate of the Ribeirão Preto Founder Institute) outlines how his company managed to use metrics to change its reveneue module.
It's never easy to make the decision to pivot, although, if you keep a consistent record of your metrics it will inevitably tell you what to do.
It is critically important for the founders of a company to intimately understand the company’s key performance indicators (KPIs). Founders cannot hope to grow a company without an almost obsessive focus on its KPIs.
Why? Because KPIs, if constructed correctly, give management and potential investors a cold, analytical snapshot of the state of the company, untainted by emotion or rhetoric. This focus must not be limited to the KPIs themselves, for they are merely measurements of outcomes.
The focus should not be on the KPIs themselves, but the meaning behind them and knowing what impacts each one.
Let’s review some of the KPIs that are important for founders to thoroughly understand and for which they should have a strategy, or set of strategies, for optimizing. Please note that some KPIs are not relevant to some types of businesses. Also, I am not going to go into very much detail on each metric and how to calculate it as it is beyond the scope of this article and is that information is readily available from other sources.
Customer acquisition cost (CAC)
CAC is the amount of money you need to spend on sales, marketing and related expenses, on average, to acquire a new customer. This tells us about the efficiency of your marketing efforts, although it’s much more meaningful when combined with some of the other metrics below.
Lifetime value (LTV)
LTV is the measurement of the net value of an average customer to your business over the estimated life of the relationship with your company. Understanding this number, especially in its relation to CAC, is critical to building a sustainable company.
We consider the ratio of CAC to LTV to be the golden metric. This is a true indicator of the sustainability of a company. If a company can predictably and repeatedly turn x into 10x, then it’s sustainable.
Average Ticket
Average ticket is a metric that provides details on the average amount of sales by a given customer. It is used by a range of businesses when analyzing business performance and sales activity.
With all that said, what exactly happened with Sellead? Well, it's simple. Our CAC was too high, and our LTV and average ticket too low. The only solution to change this scenario was to dramatically increase our average ticket by pivoting our revenue model. We went from a SaaS company to a Fintech company.
Whether big or small, strategic pivots need to be carefully planned and well-timed. Change is a natural and expected part of running a successful business. Sometimes a startup can change in ways the founder didn’t anticipate, and in such cases, it’s necessary to take a different approach to your business operations. If you rely on metrics, it makes it a lot easier to make those decisions.
That's why it is important to start measuring everything from the beginning. Even if you think you don't have enough data, you should track it consistently. When you speak to founders to learn more about their companies, you should ask them for KPIs, along with their narrative and other information. It is a quick way to understand the current state of the business. Investors normally have serious concerns about founders who do not know their KPIs.
Here is my 7 step guide to executing a perfect pivot.
1. Realize when your plan isn’t working.
This is when the idea of a pivot first begins to dawn on you. You’re realizing that the growth, potential and viability of your startup is in jeopardy.
Please note that this is different from entrepreneurial fatigue or burnout. This is a business problem, not necessarily a personal crisis. (Though the two are often intertwined).
2. Come up with a list of possible reasons why it’s not working.
If something is going wrong, there is usually an explanation. Why is your plan not working?
There may be plenty of reasons, so write them all down. It’s often helpful to ask a series of ‘whys’, in order to boil it down to the real reason why things are not going according to plan.
3. Gain a fresh perspective on your long-term goals and vision for the business.
Revisit the plans and goals you first had when starting your business. What was your objective? Who was your audience? What was the growth plan?
4. Revise those goals and visions as necessary.
There is nothing sacred about these plans. A pivot is a radical move, and you may need to scrap your original goals in order to accommodate a new definition of success for your business.
Take some time to either revise your old goals, or simply scrap them and start from scratch.
5. Come up with a list of ideas that will help you to accomplish those goals.
This is where the pivot takes shape.
You realize that something isn’t working. You have a good idea what it is that’s gone wrong. You have a clear sense of your ultimate destination.
Now how are you going to get there? At this point, your goal is to write down all your ideas for getting to your destination.
Make sure you record all possible plans. You’re not creating a business plan (yet). You’re just compiling ideas.
6. Develop a clearly defined plan.
At this point, you’re ready to settle in and come up with a plan.
Get as detailed as you think would be helpful. If you want to write an entirely fresh business plan, that might not be such a bad idea.
Remember, however, that this could be one of many pivots that you make. A pivot is less of a plan and more of a test, as Eric Ries’s definition reminds us.
You don’t succeed simply by picking one idea and running with it. You succeed by testing a variety of ideas and choosing the best.
7. Define the numbers or signs that will gauge the success of your new plan.
If you must, use the term “KPI” (key performance indicator) to gauge your success.
The point is this: You need to know whether your new plan is working or not.
Watching the numbers is the only way you will know whether or not to pivot again. Which numbers do you watch? This step should inform you.
Conclusion
A pivot is not easy to execute and that’s why many startups fail. If more startups did pivot, then more startups would survive. Pivoting is the secret to survival. It’s the closest you’ll come to failing without actually failing. Learning to pivot could save your business from failure and allow you to succeed in the long run.
