4 Immutable Startup Strategies for Entering Any Market and Improving Go-To-Market Success.
Business success never comes by accident. Rather success in business comes through deliberate and diligent planning. For a long time, I had preached Nike’s slogan, “Just do it”, that is, entrepreneurs don’t need an elaborate plan, all they probably need is a great vision, high-level energy and the passion to chase their dreams.
Almost two decades down the line, I need to adjust my entrepreneurial lens so I can see “people” as they are and not as trees. Which is another way of saying, entrepreneurs need much more than a great vision and the adrenalin to chase that vision relentlessly. They need the discipline and the presence of mind to make strategic choices and sound judgments that will help build a sustainable organization in the long run.
Peter Drucker in his book, Innovation and Entrepreneurship, argued that innovation and entrepreneurship is a practice as well as a discipline. His point was that innovation or entrepreneurship is not just a mere flash of genius that randomly happens. Nor is it the “learning by doing” as opined by the likes of Richard Branson.
Instead, it is a practice and discipline that is organized. In other words, hitting at success might require some rigorous processes that is forged on the altar of a definite and clear purpose. Before I delve further into this discourse, I’ll like to define three terms “innovation”, “entrepreneurship” and “strategy”.
Innovation: This is the process of discovering new ideas and realizing those ideas at large scale, changing the way we live and work. It is the generation and application of new knowledge in order to solve the practical problem faced by society.
?Entrepreneurship: This is the process of moving resources from an area of low productivity and yield to an area of high productivity and yield.
?Strategy: This is a plan for solving problems that stand in the way of achieving a goal, mission or vision.
?So, as an entrepreneur, do you need a strategy or a plan that can help you reach your goal?
Before I answer, let me use the example of two entrepreneurs (fictitious cofounders) who see a gap in Nigeria’s fintech sector and want to drive value within that sector. The startup founders have two broad ways of dimensionalizing their entry into Nigeria’s fintech space.
?In this Harvard Business Review, Strategy for Startups, the authors identify two foundational principles:
(1)??The attitudes of entrepreneurs towards incumbents (collaborate or compete with incumbents)
(2)??Their dispositions towards existing innovation (create something that completes or “adds to” existing innovation or disrupts existing innovation platforms).
?These two broad issues trigger four strategies that are open to startups when entering a new market.
Quadrant one: The startup can choose to be an “idea factory”. That is, rather than compete directly with incumbents, and try to steal their lunch, it licenses its technology to them. Dolby licenses its sound technology to Bose, Sony, Apple and
Quadrant two: The startup founders create a new value chain. Usually, the founders can introduce a platform strategy. IrokoTV started by offering on-demand African movies. It simply created an online portal where this can be done, which allowed it to control the value chain.
?Quadrant three: The startup founder can choose to create value for partners in the existing marketplace. Qualcomm creates essentially all the components of Apple’s iPhone. So, it doesn’t compete directly with the phone company but it actually helps it to deliver value to its customers. ?
Before founding EbonyLife TV, Mo Abudu has been creating content for a number of broadcast television stations. Two of her most popular syndicated programmes are Moments with Mo and The Debaters. Ditto Tajudeen Adepetu had a number of programmes on Africa Independent Television, AIT before he founded ONTV, and a host of many television channels.
Quadrant four: The startup can disrupt the existing marketplace. Enter with a new business model and compete directly with incumbents. Netflix the movie industry and sent Blockbuster packing. Apple disrupted the smartphone market making Blackberry and Nokia casualties.
Embrace what you know. Really?
It is well known that when startups want to enter such a market, what they often do is use perhaps the most obvious route to market entry. Which is another way of saying the startup does not explore available options as indicated in the quadrant above. In many cases, the startup may consider the process laborious, rigorous and time-consuming which may ultimately slow down its Go-To-Market plans.
But studies have shown that when entrepreneurs are more perceptive, that is, they take their time to explore alternatives, they tend to be more successful. Rather than expend their energies on what they think is in sync with the internal configurations of their organizations.
Perhaps you know that Elon Musk didn’t dream up an electric car. No! Shai Agassi, through his Better Place, did. He plunged a humongous one billion dollars into creating a “power ecosystem” around his idea. But it failed. Compared his approach to Elon Musk’s more thoughtful and focused approach.
And is it any surprise why Tesla has gone on to be very successful? The corollary is that entrepreneurs are more positioned for success when they take their time to think through the problems they are trying to solve than when they just do it by winging thoughtful deliberations.
The "Learning by doing" school of thought is still relevant, but experience has shown that it doesn’t work in many instances. If anything, when entrepreneurs take the obvious route to commercialization, they spend more money.
As mentioned earlier, Shai Agassi burnt $1 billion on “Better Place” yet things never got better for the company until it bit the dust a few years later. The reason is not rocket science, taking the most likely route to commercialization makes the company vulnerable to the competitive actions of incumbents. Why? It is predictable. As a matter of fact, the incumbents can predict its next line of action.
?That said, there are four strategies that the entrepreneur can piggyback to succeed and win. This is being mindful of the four critical factors startups need to consider when thinking of seizing strategic opportunities: customers, technology, the identity of the company and how the company wants to be positioned against the competitors. Interestingly, these factors are interdependent and interlinked.
For instance, the customer group that the company chooses to serve will determine the type of technology it would deploy to drive value. Both the type of customers and the technology will inform the type of identity it would adopt while the identity will inform its market position. The starting point is to do data mining – gather data on customers, technology, identity and market position.
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This might be easier for established companies as they would likely have data about customers, technology, identity and market position known as historical data. They can easily unearth this and determine which strategy will be a good fit, that is, after rigorous analysis. But smaller companies may not have that kind of advantage, meaning they would have to mine from scratch. This gives them an advantage though as established companies may fall into the risk of being blindsided by established patterns of behaviour.
Four startup strategies:?????????
a.??Intellectual property strategy: As you are aware, strategy is all about making integrated choices that add up to create an advantage for the company over incumbent competitors. Even if the startup decides to source funding to drive its operation, not going head-on with bigger rivals is a wise choice. Hence, the company may decide to patent its technology and license its usage to bigger companies. The focus of the company will be to be an “idea factory”.
Dolby does not compete for head-on with incumbents. Rather it licenses its innovative sound technology to companies like Apple, Sony, Bose etc. Though it has limited interactions with movie producers and directors, it has been credited with raising the emotional intensity of movies such as Star Wars, and A Clockwork Orange.
Dolby Laboratories known for noise-reduction technology was created by Ray Dolby in 1965. Nearly anyone in the stereo system or watching movies in the theatre must have encountered the Dolby brand.
Companies like Dolby prioritize patent protection, idea generation, and investment in research and development to create a formidable defence to ward off competitors from invading its profit sanctuary.
b.?Value chain strategy. The idea here is to look for opportunities within the existing marketplace and create value that can complement the existing value chain. Ideally, the startup would partner with a bigger company and establish a kind of symbiotic relationship, where both benefit. It is well documented that the value the startup is bringing to the table actually results in the reduction of cost or enhanced differentiation for the established company.
That said, the value proposition of the startup must fit into the existing value chain and not try to disrupt it. Hence, the identity of the startup is forged in the crucible of competence rather than competitiveness, the focus is on creating and developing rare capabilities.
The value chain strategy or VCS is within reach for most startups because it is far easier to manage and coordinate than a disruptive strategy. Examples of startups using the value chain strategy include debit and credit card companies such as Verve, Visa, Mastercard etc.
?In all these cases, the startup just plugged into the existing value chain and helps to do two critical things – reduce the cost of operation for their partner financial institutions and help to differentiate their offering in the marketplace.
c.?Architecture strategy. This is a scenario where the startup or entrepreneur creates a new value chain. This is usually done through a platform strategy. That is, the focus is to create a platform that brings people together That said, the underlying technology might not be owned by the startup though. Companies like Facebook, Google, and Airbnb belong here.
For instance, some social networks had existed before Facebook but the social network created an entirely new value chain which was different from what existed at the time of its founding. They only align their offerings through the choice of customers, technology, identity and market position. It is well known that either Facebook or Google created the platform strategy but they brought it to the mass market.
The architecture strategy is quite risky, so most startups will be hesitant to travel down this path. Take Facebook. When it started about two decades ago, in 2004, it was a social network created by a Harvard undergrad for people to share their profiles. Over the years, the network grew into a massive online community with over 2 billion people, the largest social network in the world.
The platform attracted users – initially, students were the primary target but later included everyone everywhere who has a profile to share. The underlying technology is not exclusive to it, it however forged its own identity. For instance, it decided not to charge users, it would be generating revenue through advertisement.
Google forged its identity early on and adopted the motto “Don’t Be Evil” as a way to separate itself from the negative vibe that was already associated with technology companies like IBM and Microsoft.
d.?Disruptive strategy. The startup competes directly with incumbents and prioritizes market entry, commercialization, market share, product development and brand awareness etc. The company redefines established value and quickly builds resources, capabilities, and customer loyalty long before incumbents know what has hit them.
In other words, the startup often leaves the incumbents gasping for fresh air. They introduce new technologies which may be flawed and keep improving with experimentation and quickly build their experience curve – making it very difficult for incumbents to compete since they are stuck with legacy technologies which may be difficult to unburden.
Netflix is a classic example of a startup that entered its market with a disruptive strategy. For instance, Netflix found a target audience who are not mainstream movie buffs - who are always on the lookout for the latest movie. Rather it looked for customers who would like to rent and return. In addition to that, the company built a recommendation engine where customers can engage and interact with one another through movie reviews. This triggered a new value in the movie rental space and rendered the business model of Blockbuster its archrival obsolete.
With the above strategies, the path to entering your market can be simpler but not easier. The onus is on you to explore the quadrants with different strategic options. This is not a tea party; it is a rigorous process. The way to do this is to do a lot of data mining – about customers, technology, your identity and market position. The corollary is that when a startup wants to enter a market without significant innovation, it is better that it enters armed with a dossier of information about the business environment than without it.
Making the critical choices
There are a couple of resources that the startup can lay hold of; these include Eric Ries’ Lean Startup, Alex Osterwalder’s Business Model Generation, and Mark Johnson’s “Reinvent Your Business Model How to Seize the White Space for Transformative Growth”.
The point has been made: entrepreneurship is not a game of chance; it is a practice and a discipline. Entrepreneurs see the world the way it out to be, they have a vision stored in their hearts and therefore seek new knowledge to solve current problems of society (innovation). But they need a plan that would make this happen.
Strategy is the plan or the bridge that links where they are now and where they want to be. So, let’s not belabour the point, startups and entrepreneurs need a strategy.
References:
2. Innovation and Entrepreneurship, Peter Drucker