Happy 2024! Time to reflect. Are you doing well but capable of great? Incremental change won’t do. More or harder isn’t a quantum leap. Instead, a pivot could get your business to the next level.
“What got you here may not get you there.” Marshall Goldsmith
I’ve been blessed as a CFO/COO/consultant to be part of several management teams that pivoted their businesses, leading to explosive growth in revenues and profits, opening new doors like:
- Going Public
- Acquiring Additional Businesses
- Merging into Another Company
- Selling the Business
I was thrilled to see us perform exceptionally and employees/investors reap the benefits. You can too! There are many ways to pivot. Check out these success stories- which ones resonate with you?
Pivoting from Making Products for Others to Developing Your Products
Private equity investors hired me as CFO to help turn around a generic pharmaceutical manufacturer, a leveraged buyout a year before. The company mainly made products for large pharmaceutical firms with margins up to 50% but had limited ability to raise prices and increase volume.
Congress had just passed legislation simplifying the approval process for generic drugs. Competitors were rushing ahead with applications to the FDA for new generics. We needed to catch up.
We pivoted to developing new generics, bringing in new management with this skill set. Rather than playing catchup, we looked at drugs coming off patent two years out where we could get the first approval. It meant more cash burn but a more significant upside. The bet paid off as we leapfrogged competitors, getting several first approvals. Revenues grew 6.5X the following year, and we earned 54% after tax on sales, with product margins as high as 96%.
Forward Integrating Through Acquisitions
This turnaround gave us options to pivot again. The industry was exploding with many new generics besides our products. Distributors grew rapidly as mainstream wholesalers and pharmacies embraced generics. We saw an opportunity to become the first integrated manufacturing/distribution company to participate in the full range of new generics and ensure the placement of our generics.
We acquired several regional family-owned distributors, consolidating them into a network offering customers nationwide pricing and servicing. This forward integration tripled our revenues. The first pivot made the second pivot possible.
Moving Upstream to Promoted Products with Higher Margins
Even in slower industries, you can still create your tailwind. I joined a young toy manufacturer as CFO/COO, started by a Far East contractor who wanted to leverage his manufacturing expertise with branded products. The main line was miniature diecast vehicles, like Mattel and Matchbox cars.
A door opened; an inventor came after being turned down by more prominent players. We jumped on his idea for a novel diecast vehicle operated with a key inserted in the rear. It was a huge step, our first TV-promoted product. I championed going for a higher price than typical cost-plus pricing, providing more TV advertising funds. In addition, we launched in the spring, months ahead of normal.
We quickly had a hit. The early launch allowed us to double capacity for the peak season, as we air-freighted products to match demand. Burnin’ Key Cars became the fourth best-selling toy in the industry. Our sales quadrupled. We paid off our bank line of credit early when interest exceeded 20%.
Ironically, Matchbox fell into financial distress two years later. Helped by the money we made, our parent company bought them out and merged us.
Lining Up Financing to Complete the Pivot
Sometimes, the idea and timing are good but need capital. California had gone legal for adult cannabis recreational use- a massive tailwind versus the smaller medical market. However, the CEO of an edibles manufacturer was panicking. Early investors had to be cashed out, or his family would lose half their equity. Time was short for an IPO; a prior CFO had struggled, and I got called in.
It was a herculean effort. Financials had to be redone and converted to a new system. Proforma projections had to be created. Yet, within two months, we filed the offering and completed the IPO in time. With the additional capital, including a secondary offering, the company grew revenues 15 times and became a top brand in its category.
Fixing Processes to Turn Revenues into Profits
It may take a mid-course correction to make the pivot profitable. I consulted for a wireless telecom company launching in six US regions (years before the iPhone). The company grew fast but burned cash heavily despite high margins. The stock fell to 10% of the IPO price in two years. Employees were bummed – their 401Ks were tanking.
The finance team thought the issue was 15% bad debts. After matching bad debts with revenues, I found it was 55% of sales. Working with the revenue assurance team, we tightened credit scoring and froze overdue accounts. Bad debts shrank to 5%, acceptable with our high margins. The company became profitable, and the stock soared nearly 50 times its low. Employees and investors were smiling again.
Sometimes, it’s best after a successful pivot to cash in. Wireless telecom technology was changing rapidly, requiring significant infrastructure upgrades. Fortunately, they had another option: selling the firm to a larger competitor. Some management retired early. Employees ended up with excellent retirement accounts.
See Results in a Different Way, Leading to New Business
Sometimes, prospects need proof. I helped a startup disease state management firm raise capital. They managed high-risk cardiac employees at larger employers, reducing life-threatening, costly claims. They had medical success with a beta client but needed help to show a business case.
I showed great patient outcomes from their data with an excellent return on the investment in their services. After converting the beta client into a customer, they quickly land a second Fortune 500 customer. They kept growing and, soon after, sold their company to a private equity firm.
10 Things to Consider About Pivoting
- Is your industry growing, or do you need to create your tailwind?
- Are there opportunities you see in your industry that others miss?
- What skill sets do you need? Are personnel changes or new roles required?
- Do you have the production/service capacity to scale up?
- What other infrastructure upgrades are needed, like computer and financial systems?
- How much capital do you require? Can investors/banks step up, or do you need new sources?
- Will you have to go all in, or can you test with a slight pivot first?
- Can you start lean with the ability to scale up quickly when demand surges?
- If in the process of a pivot, do you need a mid-stream adjustment to reach your goals?
- After a successful pivot, do you have another one in store, or is it time to sell?
Pivots are hard work but can be the best way to transform your business. Don’t settle for the ordinary. There may be untapped greatness. Explore pivots to make 2024 and beyond your best years ever!