Deep Kalra, the founder-CEO of MakeMyTrip (MMT), says that MMT went through two major inflection points in its journey. MMT started off selling air tickets on its platform. Air ticketing was a commodity business. There were a limited number of suppliers (airlines) and they had their own distribution capabilities. They did not value MMT’s distribution capability sufficiently to part with enough margin. If there had been twenty airlines in the fray, the bargaining power of a platform like MakeMyTrip would have automatically been strengthened from this competitive intensity. MMT wasn’t making money.

However, what the air ticketing business had done for MMT was that it helped build a large subscriber base. All of digital India that was travelling was on their platform. It became easy for MMT to pivot at this stage and move into hotels. Hotels were a highly disaggregated category and a perfect market for a platform. Hotels were willing to part with significant margins in exchange for business. The obvious question is would this constitute a pivot or was it just about tapping an adjacent market using their same core capability? It was clearly an inflection point because hotels soon constituted a lion’s share of the business. MMT went on to grow rapidly in value and hit a market capitalization in excess of $2 billion while

Yatra remained a sub $300 million company. If by moving to an adjacent segment (either customers or supply) that is fundamentally different from your current segment, you could alter the trajectory of your business then this move would be a pivot. Another obvious question is why couldn’t Yatra just follow suit? Unlike the air ticketing business, which was entirely technology-driven, the hotel business involved friction on the ground and needed a team with a different set of capabilities. MMT recognized this and built this capability quickly. Further, tech integration with 4-5 airlines was simple. Tech integration with thousands of hotels was a different kettle of fish altogether. Network effect soon kicked in and hotels wanted to be on the MMT platform because travellers were on the platform, and vice-versa.

Sometime in January 2017, in one of the biggest M&A deals in India, MMT acquired Ibibo. With this transaction, all the important brands in the consumer travel space – MMT, Goibibo, Redbus, Ryde and Rightstay – in India came under the umbrella of MMT. This was another major inflection point in MMT’s journey. The major players who, before this deal, were bleeding red ink in their financial statements were able to successfully cut cash burn. This deal propelled MMT to the next orbit.

In another example, Daksh started off by providing outsourced email customer support. The team had serious doubts about the willingness of American companies to take the risk of moving voice-based support to a country with a totally different accent. It was difficult to fathom that training could work wonders and Nandini could be trained to speak like Nancy! However, the reality turned out to be different. Email support was not as ubiquitous as people thought it would become and American companies demonstrated an appetite for outsourcing voice-based support to India. Daksh soon pivoted to providing voice- based customer support. Voice-based support called for a totally different capability and the execution was very challenging, but Daksh built that capability. Starting from a niche market Daksh pivoted to tap into a much bigger and growing market.

WhatsApp, which started off by leveraging Apple’s push notifications update for ‘status- tracking’, soon pivoted to becoming an internet-based messaging app. Jan Koum, the co-founder and CEO of WhatsApp kept an inspirational note by his co-founder Brian Acton, “No Ads! No Games! No Gimmicks!” always taped to his desk. WhatsApp has stuck to this promise and continues to reject the idea of showing ads to its users. This promise has helped WhatsApp emerge as the winner over all other messaging apps offered by much bigger players.

Amazon and Myntra too pivoted successfully. Amazon from being an online book store to an ‘everything store’, and Myntra from being an online store for ‘gifting-items’ to an e-commerce site for fashion.

Another example of a successful pivot is the one UnitedLex made. UnitedLex is a Unicorn in the technology and legal services space. They were focused on providing ‘contract management’ services. They soon discovered that the buyers of this service were spread across within a large corporation and therefore, it involved selling the same thing to multiple small stakeholders within every corporation. On the other hand, they figured out that when it came to ‘litigation services’ the buying was centralized within a corporation and hence involved one strategic sale. Soon, UnitedLex learned to focus on and build capability in this new sub-vertical of litigation within the broader vertical of legal, and this launched UnitedLex onto a new growth trajectory.

All these are examples of startups that have attained significant scale. On the other hand, ‘Rocketium’ is an example of an early-stage startup that made a few significant pivots to discover the near-perfect product-market fit. I asked Satej, the founder-CEO of Rocketium, what product-market fit really meant to him. His view was that product-market fit is a bit of a nebulous concept, but you could be sure of a good product-market fit if you see some of these signals, a) prospects or customers begin chasing you for meetings and product demos instead of you chasing them for meetings and demos, b) customers ask you for new features with a sense of urgency or want to close deals quickly, c) you no longer have to sell a lot, and instead you are flooded with inbound interest, d) customers instantly connect with what you have to offer. It is evident that they are not being polite and nice. Their expression is one of ‘why didn’t we know earlier that you existed?’ He described an example of a call with a senior executive at a Fortune 50 retail company in the US, where this executive spent the first ten minutes describing how it took twenty days to take a banner live. He concluded by saying that he was looking for this fictional product that could cut this time significantly. He spent the next twenty minutes watching his fictional product turn into reality when Rocketium’s VP of Sales walked him through how the Rocketium product worked on his company’s platform. After fifteen seconds of pregnant silence, the executive just said, ‘why didn’t we know earlier that you existed?!’

Rocketium had made two pivots along the way, but the fundamental premise on which the platform was built remained unchanged, namely, ‘people have short attention spans and engage with visuals better than with text or static imagery.’ Starting from easy online creation of videos, with a feature-rich product and excellent support, Rocketium eventually pivoted to deliver products that integrated deeply into the workflow of their clients and helped them maximize their revenue through an in-app advertising solution. This brings us to an essential component of a pivot which is that it is a change in direction that addresses a different customer segment or solves a different problem. However, the underlying core capabilities and principles should drive the pivot. If you need to change everything you did before the pivot, including the core premise or capabilities on which the company was built, then you might as well shut down and start a new company.

Rob Fitzpatrick, in his book “The Mom Test – How to talk to customers & learn if your business is a good idea when everyone is lying to you”, says most founders either use overly opinionated questions like, ‘do you think it’s a good idea? or very broad questions like, ‘do you think there is a need for a product like this in the market?’. These questions result in an incorrect understanding/answers about the market. He says, ‘Asking your mother if she thinks your product is a good idea will always lead to ‘yes’. Unfortunately, your mother is not a real market.’ The book is all about asking the right set of questions (like, say, ‘Talk Me Through Last Time That Happened’) that would help you truly figure out what you need to build, which is getting your product-market fit right. This book has come up in numerous conversations with entrepreneurs who swear by it and believe that the examples of good and bad approaches illustrated in the book are very helpful in validating startup ideas.

Paytm was founded in 2001 and offered live astrology services for a telecom services provider. At that point in time, it wasn’t known by the name Paytm. Very quickly, it got into providing value added services like gaming and subscription-based content. Vijay Shekhar Sharma recognized the future of mobiles in India early on and broadly stayed with the belief that this opportunity was huge and needed to be tapped. Almost every single pivot that Paytm made continued to leverage the ubiquitous presence and power of the cell phone. Paytm as an entity came into being sometime in 2010 as an online recharge portal.

Sumit Chakraborty, then a journalist at ‘TechInAsia’ and now a consulting editor at the ‘Mint’, had in an article in ‘TechInAsia’ (06 December 2016) titled ‘Paytm founder prepares for his next pivot, which could be the biggest yet’ said that, ‘Paytm has earned a series of labels over the years: from SMS services to phone top-ups to a mobile commerce and fintech company. Vijay now simply calls it a mobile internet business as possibilities have exploded over the past couple of years, especially after the investment by Alibaba.’

Sometime in January 2014, the Nachiket Mor Committee on Comprehensive Financial Services for Small Businesses and Low-Income Households, formed by the RBI, in its report recommended the formation of a new category of bank called payments bank. The primary purpose of setting up payment banks was to create no-frills banks that would increase financial inclusion by offering small saving accounts and payment remittance services to low-income households, migrant labour workforce, small businesses, other unorganized sector entities and other similar users. For Paytm, this was a natural extension of its core platform. It obtained the Payment Bank license sometime in January 2017. The problem with the Paytm wallet was that one needed to constantly move money into the wallet from a bank account. Paytm’s Payments bank would address this problem. Wallet payments could become that much more seamless and easy to use.

A month later, inspired by China’s largest B2C online retail platform T-mall, Paytm launched Paytm Mall. In early 2019, eBay bought a 5.6% stake in Paytm Mall. This was quite an unnecessary pivot. Very soon, there were problems. There was no way Paytm Mall could compete with the likes of Flipkart or Amazon, who had paid undivided attention to this category of the consumer internet. Paytm Mall had to resort to rampant cashbacks and discounts to win market share. And the market share was not sustainable. It would evaporate as soon as the cashbacks and discounts would disappear. After mounting losses and being unable to make any headway, Paytm Mall shut down warehouses across many cities and migrated to an asset-light market place model.

While some of the pivots were opportunistic and smart, some of the other pivots came across as reckless and brash – the kind of pivots that one makes when one is sitting on a huge pile of cash. As a result Paytm became ‘everything for everyone. It remains to be seen how the company reinvents itself and manages its valuations in the future.

Someone had once remarked that IBM had more committees than the Government of the United States. Despite all criticism of moving at the pace of an elephant, IBM has been successful at navigating the inflection points in its journey with panache. As a result, it has continued to remain relevant even after a century.

In the 1970s, IBM’s dominance in the mainframe market was total. The acronym BUNCH was the nickname for the group of mainframe computer competitors to IBM in the 1970s. The name is derived from the names of the five companies: Burroughs, UNIVAC, NCR, Control Data Corporation (CDC), and Honeywell. These companies were grouped together because the market share of IBM was much higher than all of its competitors put together. During the 1960s, IBM and these five computer manufacturers, along with RCA and General Electric, had been known as ‘IBM and the Seven Dwarfs’. The description of IBM’s competitors changed after GE’s 1970 sale of its computer business to Honeywell and RCA’s 1971 sale of its computer business to Sperry, leaving only five “dwarves”. The companies’ initials thus lent themselves to the acronym, BUNCH.

Despite dominance in the mainframe market, IBM had no presence in the micro-computer market which was small. However, by the 1970s, the market was slowly picking up, and by 1979 the market was big enough to draw IBM’s attention. The market was also projected to grow very significantly. Realizing that it had no presence in a large and growing market, IBM decided to make a foray into this space despite internal skepticism and advice to stick to the knitting.

Some of the senior-most executives at IBM had the foresight to realize that over the years the organization had become too slow and bureaucratic. There was no way it could respond quickly with its own product. So, they made the bold move of relocating some of the best engineers to Boca Raton in Florida and insulated this team from the rest of IBM. This team had special budgets, could break the rules, and was provided access to the senior-most decision-makers. Very soon, the IBM PC was launched. It went on to become a grand success. The BUNCH companies would follow IBM into the microcomputer market in the 1980s with their own PC compatibles.

Lockheed Corporation created the Skunk Works to overcome the challenge of innovating in the context of a large corporation. Growing threat of the German air power during World War 2 forced the US to quickly develop a fighter jet of their own. The US Air Force met with Lockheed Aircraft Corporation to develop an airframe around the most powerful jet engine that the allied forces had access to, the British Goblin. Lockheed was chosen to develop the jet because of its past interest in jet development and its previous contracts with the Air Force. One month after the meeting, a team of young engineers at Lockheed had delivered the proposal to the Air Force. Two days later the go-ahead was given to Lockheed to start development and the Skunk Works was born, with Kelly Johnson at the helm.

The formal contract for the airframe did not arrive at Lockheed until four months after work had already begun. This would prove to be a common practice within the Skunk Works. Many times a customer would come to the Skunk Works with a request and on a handshake, the project would begin, with no contracts in place, no official submittal process. Kelly Johnson and his Skunk Works team designed and built the airframe in only 143 days, seven fewer than was required.

Skunk Works ran like IBM’s PC project: It cut through the red tape of rules and procedures of the parent.

Smart companies try to delay the descent into bureaucracy by staying agile (or pretending to stay) and staying sensitive to customer needs. Smart companies also use the Skunk Works approach and once in a while bounce back to a new cycle of innovation. But the energy of youth and the inevitability of death often result in a small startup with a young founder eventually disrupting this behemoth.

External factors can accelerate the arrival of an inflection point and accentuate its impact if it is already grappling with internal challenges. External factors could be a recession, a new invention, or a regulatory upheaval or a host of others.

If companies are cognizant of the fact it becomes increasingly difficult for large companies to innovate, they try and acquire promising startups and provide them with autonomy and support. Acquisitions may or may not work out. The reality is that half of the acquisitions end up as total failures. Half the mergers fail because of a) culture incompatibility, b) overestimating synergies and benefits at the time of the acquisition, that do not eventually materialize on the ground, and c) integrating too quickly.

The trick is to make the other half work. Facebook recognized that the younger generation no longer considered Facebook cool and trendy and hence moved swiftly to acquire Instagram and WhatsApp. Companies like IBM have mastered the art and science of integrating companies they acquire. In one of the biggest acquisitions, IBM acquired PwC Consulting, the global management consulting and technology services unit of PricewaterhouseCoopers in October 2002. The deal was valued at approximately $3.5 billion in cash and stock. Some of the other more well-known acquisitions were Lotus Development Corporation and Tivoli. In the first ten years of this century itself, IBM acquired an average of nine companies a year! These acquisitions have helped IBM in no small measure to stay at the cutting edge.

To deal with the risk of failed integrations, companies have now begun to incubate and accelerate their own set of startups. For example Shell Corporation’s technology centre in Bengaluru has been incubating energy-related startups, banks in India have begun incubating and accelerating Fintech startups. Incubators and Accelerators seem to be the new mantra in the startup world.

The cycle of innovation, growth and decline is universally represented as an ‘S’ curve. The ‘S’ curve like the Pareto principle is a somewhat universal principle that finds application across a wide spectrum of disciplines. The ‘S’ curve represents the lifecycle of innovation, namely an early stage of resistance to change because of entrenched ideas and entrenched interests, followed by a stage of rapid growth when the benefits of the new idea become too obvious and enormous to be ignored, culminating in the idea being replaced by another innovation – the eternal cycle of birth, growth and death.