Entrepreneurial Strategy - Why It’s Necessary: Advice from a Student VC — Volume 1
One of the most stressful elements in venture building is choosing an entrepreneurial strategy.
It’s a step that is often overlooked or we delay until later on in our venture to consider and incorporate. However, choosing an entrepreneurial strategy early can help you frame your business plan and more quickly find the best market and path for your startup. Ideas come by the millions, but it’s the successful execution of these ideas that leads to successful ventures. That’s where entrepreneurial strategy comes in.
In his book, Disciplined Entrepreneurship: 24 Steps to a Successful Startup, Bill Aulet, Director of MIT Sloan’s Martin Trust Center, provides a strong framework to guide you through the process of scaling your venture and applying an appropriate strategy.
His method is divided into 6 main questions that should be the guiding force behind building your venture. Being able to identify and clearly answer these questions is essential in order to create a comprehensive strategy and help you achieve product-market fit:
- Who is your customer? Despite how simple it sounds, some entrepreneurs and companies often overlook who their true customer is. Take for example the New York Times. Is their customer individual subscribers or paying advertisers? Is it both? Being able to recognize the right parties that are using your product or service will help you formulate the right strategy to reach your customers.
- What can you do for your customer? Are you a vitamin or a painkiller? A nice to have or a must-have? How you alleviate your customer’s pain points and how much you solve it is equally as important as knowing who your customer truly is.
- How does your customer acquire your product? Does a potential customer need to visit a physical store like Home Depot to buy your product? Does it require experienced sales reps and system integrators like enterprise software? Or is it as simple as a website like Amazon? How your customers acquire your product will set the tone for how you form the appropriate marketing to acquire and build relationships with your end users.
- How do you make money off your product? The rise of the smartphone and computers has changed how companies monetize their product. Will you charge a subscription like Netflix? How about a freemium model like Dropbox? In-app downloads like Fortnite? Advertising? How you profit off your product is how you will turn your product into a thriving business.
- How do you design and build your product? Will your solution be used by children, millennials, or the elderly? Do you need software developers or designers to build your product? Listening to your customers will help you ensure your designing the right solution and will guide you in knowing what resources you need in order to build the right product for your audience.
- How do you scale your business? How can you take your venture from an idea and get your product offering into the hands of 10, 100, 1000, and eventually 1,000,000 people effectively? What distribution channels are needed? Will it require getting into Walmart and big-box retailers? Will it require hiring more people? Having a scalable business will allow you to not only reach more people and expand your revenue, but will garner the interest of venture capitalists who are seeking to invest in companies that can grow exponentially. That’s why software companies like Figma, Slack, and Airtable are so sought after from investors — software is incredibly scalable.
In addition to these questions, Scott Stern, the David Sarnoff Professor of Management and Chair of the Technological Innovation, Entrepreneurship, and Strategic Management Group at MIT Sloan, outlines another framework to form your strategy.
In his book Foundations of Entrepreneurial Strategy, he outlines four main routes: intellectual property, architecture, value chain, and disruption. This can help you plan for cost, choose who your customers are, and how to approach your venture.
- Intellectual Property Strategy: Is your product patentable? This can help insulate your business from competitors and fend off copycats! This is also critical in building a competitive advantage. Entrepreneurs pursuing an intellectual property strategy choose to invest in control over their innovation while building a value chain through collaboration with incumbent firms in an industry in order to create value for the final end consumers. Stern notes how Ray Dolby, a pioneer and global leader in noise-reduction technologies, patented his technology and licensed it to Sony, Bose, Apple, and other large companies,
- Disruption Strategy: Are you innovating or copying a peer? Ventures following a disruption strategy choose to focus on execution and flexibility rather than control, and plan to engage in competition with industry incumbents by employing judo strategy and rendering them obsolete. Stern highlights Netflix who turned the video rental business on its head after he grew irritated with Blockbuster’s overdue fines.
- Value Chain Strategy: How many steps are in your business from production to when it meets your customer? Knowing where incremental value is added to your product or service can help you identify cost-saving points and hopefully pass cost savings over to customers. Entrepreneurs pursuing a value chain strategy around their ideas strive to focus on execution rather than control. This strategy allows entrepreneurs to create value through cooperation with industry incumbents. A classic example is Infosys, who Stern mentions recognized the growing need for skilled and affordable technology workers given the global growth of information technology. The company leveraged its low-cost Indian labor base and then began selling its services to multinational companies worldwide.
- Architectural Strategy: Lastly, similar to the intellectual property strategy, the architectural strategy requires entrepreneurs to invest in control over their underlying innovation. A key distinction however is that architectural strategy entrepreneurs plan for competition against existing incumbents by developing a new value chain in the industry. Stern’s top example is Bloomberg L.P. who under the leadership of Michael Bloomberg envisioned a world where computers and fast financial information should be right at the fingertips of analysts. And instead of just selling his terminals, the company charges a large subscription, upwards of $20,000 per year, for each user. This allows the firm to retain ownership over the terminal and continue to enhance the product and not be subjected to seasonal sales periods.
The models above are only a sliver of the many models of entrepreneurial strategy. Having a plan helps you achieve your goals and enhance the odds of success whether it be profits, revenue, impact, and beyond. For high-venture startups, developing a strong entrepreneurial strategy can save you a lot of time and money in the long run.
-Celine Christory, Founding Partner of Green Line Ventures
Recommended Resources:
- Disciplined Entrepreneurship: 24 Steps to a Successful Startup by Bill Aulet
- Foundations of Entrepreneurial Strategy by Scott Stern
- https://executive.mit.edu/blog/ready-to-go-from-idea-to-start-up-in-just-one-week
- https://hbr.org/2018/05/do-entrepreneurs-need-a-strategy
- https://hbr.org/podcast/2018/05/choosing-a-strategy-for-your-startup
