During the first week of this year, I spent some hours reading a book that touches on the subject of companies that went through massive business pivots.
As an entrepreneur myself, after reading that book, I realized that one of my own businesses pivoted during the COVID-19 pandemic. It was this pivot that helped us survive during the lockdowns.
But the most curious thing about this book so far was an extraordinary example of a business pivot that I had never heard about.
A remarkable move by a company that had existed for over a century by focusing on a single product… but then abruptly changed its entire structure for the better.
This story impressed me so much that I decided to read more about it, which then inspired me to write this article.
But first, some context.
What is a Business Pivot
When a business pivots, it changes something about its core products or services. Businesses might change directions to better meet customer needs, change their target audience to increase sales, or do a mix of both.
Or, as you will see in this article, to avoid bankruptcy after one of the most tragic terrorist attacks in history.
Making a pivot is a strategic move you can use to make sure your business stays alive and makes money. Most of the time, it’s also done as part of a long-term plan.
Examples of Business Pivots
Here are some examples of business pivots that will help you understand what they are and how drastic they can be:
- Netflix started as a service that delivered movies on physical media (like DVDs) to your mailbox. With increasing internet speeds opening the possibility of watching movies via streaming instead of on discs, the company pivoted to a digital services provider.
- Suzuki originally produced weaving machines for the Japanese silk industry in Japan. At the beginning of the XXth century, the founder, Michio Suzuki, saw the potential in the nascent industries of motorcycles and small cars and decided to diversify the portfolio of his company.
- Starbucks used to sell espresso machines and coffee grains until its former CEO, Howard Schultz, visited Italy in 1983.He observed the local caffès and decided to adapt the concept for the American market. The rest is history.
- During a pivot that is still ongoing, Revolut started as a simple financial app and is turning into a super-app where you can even book your holidays.
All the examples above happened somehow organically. They were not the result of a shock. There was not a single event that triggered Netflix, Suzuki, or Starbucks to change their core businesses.
And that is the case in most stories of business pivots.
Except for Victorinox. They needed to pivot because of what happened 21 years ago at 8:46 in the morning at exact coordinates 40° 42′ 45.8712’’ N and 74° 0′ 48.1752’’ W.
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How one of Victorinox’s worst crises made the company stronger.
Until 2002, more than 80% of the revenue from Victorinox came from a single product:
The Swiss Army Knife.
A Swiss army knife is a multipurpose tool with a wide range of blades, screwdrivers, scissors, files, and other tools. All of these accessories are kept in a clever set of spring-loaded compartments that share a single handle.
It is almost like a toolbox that can fit in the palm of your hand and weighs 0.7 oz (less than 20 grams).
Despite its apparent simplicity, it is an ingenious and useful device. If all this was not enough, only two companies in the world are licensed to produce it: Victorinox and Wenger, both Swiss firms.
That is why the Swiss Army Knife was such a coveted gift.
The Victorinox Swiss Army Knife is:
- Small enough to fit a gift package.
- Light enough to not add much weight to your hand luggage.
- Fine looking.
- Customizable, meaning brands could stamp their logos in the knife body when gifting it to potential customers or long-time employees.
- High-quality and from a well-recognized brand
The company is eager to talk about how useful the knife is, like how it was used to save kids from drowning cars, fix a space shuttle, and even cut off the leg of a tsunami victim in Sri Lanka.
Two of the main sales channels for the Swiss Army Knife were:
- Corporate sales, where companies bought it to give it to visitors, employees, and customers as a branded souvenir.
- Duty-free airport sales — it was an interesting gift to present to someone after an international trip.
Until it was not anymore, and that happened at 08:46 in the morning of 09 September 2001.
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The 09/11 terrorist attacks forced Victorinox to pivot
The sales of the Swiss Army Knife plunged more than 30% after the attacks, for a few reasons:
- Airport security completely changed, and obviously, that affected the sales of pocket knives in duty-free airport shops. According to the CEO Carl Elsener Jr. (the great-grandson of the founder, Karl Elsener), “We lost over 40% of our business […] Airports sent vast quantities of the knife back to us.”
- The Swiss Army Knife lost its appeal as a corporate souvenir since people could not travel with it by plane (and carrying a pocket knife could put you into big trouble).
We lost over 40% of our business […] Airports sent vast quantities of the knife back to us. (Carl Elsener Jr, CEO of Victorinox during 2001)
So by now, we know that a single event crashed the sales of a product that represented 80% of the sales of a century-old company.
Still, Victorinox survived. How?
The Business Pivot: From the Swiss Army Knife to a Diversified Portfolio
Now, you probably know what Victorinox needed to do: either develop another product or find another market; otherwise, they would go belly up.
But those things are not done in a single day, and when the sales of your main product crash, you need to buy time.
The measures taken by Victorinox to survive and gain time until they could profit from their new products were:
- The company never fired a single employee during this crisis, but it saved jobs by loaning Victorinox workers to other businesses in the area where it is located (Ibach, Switzerland). Close to 80% of the workforce was loaned to other businesses.
- While avoiding layoffs, the company stopped hiring and cut shifts by 15 minutes.
- Employees were urged to take vacation days ahead of schedule.
- The philosophy of the Elsener family (founders of the company) was to always prioritize organic growth instead of skyrocketing numbers while saving profits for troubled times. This concept proved useful. “We always had reserves”, said the CEO, Carl Elsener Jr.
These measures were in place for approximately two years. During this time, they pivoted.
Until 2001, a single product (the Swiss Army Knife) accounted for 80% of revenue; now, it accounts for less than a third.
The business pivot for Victorinox included products and markets like:
- Travel gear like carry-on bags, wallets, and briefcases: a smart choice considering the already existing network of airport shops.
- Watches: another convenient choice, considering that Victorinox can brand its watches with the prized swiss made stamp.
- Fragrances: also another item that can easily be sold at the already existing airport shops.
- Flight-safe versions of its most famous product, like a kids’ Swiss Army Knife (with no blade), or a blade-free air-travel version of it.
- Developing new markets in emerging countries like India and China.
More than surviving the 2001 crisis, Victorinox left it stronger.
It became antifragile (you can learn more about antifragility here).
The Swiss company strengthened employee loyalty and expanded into other product categories such as watches, travel gear, perfumes, and fashion, all of which could still be sold through its traditional airport shops. These new product lines maintained the Victorinox brand’s high-quality image and accounted for up to 60% of company revenue in 2009.
The company still faces challenges, like competition with Chinese brands. The entire production of the Swiss Army Knife is (surprise) assembled in Switzerland, and the company’s CEO, Carl Elsener Jr. (a modest person who drives a Peugeot), refuses to change that. As he once declared:
My parents taught me a certain modesty. We are a Catholic family. I get satisfaction from doing a job I enjoy. I don’t need a Ferrari[…] the Swiss army knife wouldn’t be very, well, Swiss if we exported production to Guangdong, as other manufacturers have done.
Even though there are always challenges ahead, the company is not in danger if one of its products faces tough competition because it has a broad range of items and none of them bring in more than 50% of the revenue.
Victorinox maybe is no more a knife company, but still is a legendary brand.
Enjoyed this article about a business pivot? Below are some pieces that will be really helpful to you for the next few months (and likely the entire 2023):
- Here is a practical guide on how to survive (and thrive!) during the inflationary wave, with advice from Argentinians, Brazilians, Poles, and others who have experienced life under out-of-control inflation firsthand.
- Deep Work vs Shallow Work: A Crucial Step for a Productive Ogre
- Lessons from a NAVY Captain about the Delegation of Leadership.
Good luck, and good reading.
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