What is a pivot? Explaining when and how entrepreneurial firms decide to make strategic change and pivot

Abstract

Research Summary: Most theories of strategic change focus on how large, established firms recognize or fail to recognize the need for strategic change. Little research examines how early‐stage entrepreneurs decide when and how to change their strategies. With a longitudinal field study of seven entrepreneurial firms developing innovations in energy and cleantech, we examined 93 strategic decisions at risk for change. We found that decision‐makers chose to change their strategies only after new information conflicted with or expanded their beliefs. Furthermore, a pivot, or strategic reorientation, was not achieved with a single decision, but by incrementally exiting or adding strategy elements over time, accumulating into a pivot. We contribute a grounded definition of what constitutes a pivot and explain when and how entrepreneurial firms pivot. Managerial Summary: The term “pivot” is used extensively by practitioners and scholars alike, yet little is known about when and how entrepreneurial firms actually choose to change their strategies and when that change constitutes a pivot. We find that entrepreneurial firms choose to change their strategies only after receiving new information that conflicts with or expands their beliefs about their firm or uncertainties they face. However, this is more rare than the norm. Rather than make wholesale change with one decision, firms incrementally exit or add a single element to their strategies. A firm pivots and reorients their strategic direction by reallocating or restructuring the firm's activities, resources, and attention through an accumulated series of decisions to address the on‐going stream of problems and opportunities early‐stage firms confront.