What is your Startup business strategy ?

A few startups out there will start their operations in a fog of uncertainty. The founder(s) will most often focus on solving a problem, rightfully so, by inventing a new way (prototype) to solve that problem. Founders must get this first part right if they want to make a successful entry in a targeted market and build a sustainable business in the process.

In addition to innovating products, entrepreneurs are also actively involved in securing an early-stage financing in order to bring that product to live, hire the right team, launch and ultimately grow. What sometimes gets left behind is the commercialization part. How do they take their product to market? Specifically on that first leg of the bumpy journey to show $0-1M in ARR. The answer is never straightforward.

Discovering your strategy

Acclaimed Harvard business professor Clayton Christensen argued in "The Innovator's Dilemma" that executives should develop plans for learnings and discovery rather then plans for execution. For executives who believe they know the market's future will invest very differently from those who recognize the uncertainties of developing a market. When Honda decided to take on American and European motorcycle market, the company's strategy was based on cutting prices, build volume, aggressively reduce costs, cut prices some more, reduce costs further until the company positioned itself as the leader in low-cost, reliable motorcycle manufacturer. From there Honda took on the upmarket, introducing superbikes that almost took out Harley Davidson and BMW.

In this sense strategic opportunities for new ventures present themselves in two distinct ways:

• approach existing technology (compete or collaborate with incumbents) or,

• approach towards innovation (creating a *business moat or run for the hills)

This basically gives entrepreneurs four strategies to enter a market :

source: HBR

Most innovative startups will begin by "storming the hill" as the road to building a moat (monopoly) is a lengthy process - think Google's search engine, Amazon monopolizing online book sales. A journey that often requires starting in a small market and making a niche for your product and expanding from there, as Peter Thiel writes in "Zero to One."

For early-stage companies who are looking to "disrupt" a market place and face an incumbent head on it all starts with developing a coherent Go-to-Market strategy before the shiny MVP is finished. Long before. The GTM plan involves making choices about which market to tackle, what technology to apply, validating your product, how to best position against competitors. Founders cannot outsource this task to the VP of marketing or another. Founders are the sales people.

Collaborate or Compete?

Joint ventures and partnerships are a low cost route to a new market. A recent client of Nestor Global Consulting looked actively to partner up with a US-based bank. By partnering up with an FDIC-insured bank the European-based financial institution is able to embed financial services into "their"product, e.g. hold deposits, issue cards. Most importantly the fintech avoided the Herculean route of having to obtain regulatory licenses, a requirement to sell its product. At the same time, the sponsoring bank gained an additional distribution channel for its products. This is not a long-term win-win situation due to difference in sizes, competitive strategies, culture among other things, but it's a good start that requires much less investment.

Competing head-on with an incumbent means that a startup has more freedom to build the value prop the way it envisions. This often requires a better technology (solution), but above all picking up the customers that leaders have left behind and bringing innovation to these customers that truly improves their lives. Apple didn't invent the smartphone, but it made it better. Apple disrupted the smartphone market.

A startup has other advantages on the playing field - it's small, nimble and its greater appetite for risk allowing it to launch a new product much quicker than in a larger organization which in many cases has become more risk averse and gradually loses its ability to innovate.

Again, competing successfully will demand that founders know and understand who their ideal customer is which includes customer's pain points, demographics, motivation. Following this step a startup needs to reflect on what problems they are solving for these "perfect" clients. Do user research, create personas, excavate and uncover as much information about that clients as humanly possible. Whatever it takes to ensure that this client is a strategic and organization fit to your strategy.

The upper two quadrants require extensive investments (multi-year budget) on the part of the startup - a luxury few startups have. Building a platform requires a clear digital ambition, service provider, API integrations and much more. Businesses that invest heavily in intellectual property (R&D) and architecture get to control and exert an extraordinary bargaining power in the marketplace. Think Microsoft Azure, Salesforce As a result, this strategy is out of reach for most startup businesses.

Conclusion

There is no one size fits all strategy. Far too often folks fail to take time to figure out how they are going to go to market. This delays the commercialization of their product/service. Missing on the revenue growth will impact the hiring process, ability to raise capital and ultimately grow. But guessing the "right" strategy from the onset is nearly impossible and not nearly as important as conserving resources (capital/investors) so that any new (strategies) have a second or third chance before they prove right. Strategies require constant reiteration. You can't set and forget you must build-measure-learn (BML).

Until next time!

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*The term business moat was coined by Warren Buffet who is known to invest in businesses that have a competitive advantage in an industry. Think companies that have built an economic advantage by increased network effect (value increases in proportion to use), repeatable, strategic use of data or simply increased social awareness (activism). These are businesses we all know these days, Apple (OS), Google (algo for search engine), Walmart (cost advantage), Patagonia (cultural/activism). All these companies have displayed a high degree of innovation to create a moat that is durable and lasting.

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