Established businesses succeed by understanding their environments but as a startup, you have the opportunity to reshape the business landscape. The question is: how?
The founders of RapidSOS had figured out an easy way to link mobile phone callers’ locations to established 911 systems. Now they had to decide how to take their product to market. Would they create a new value chain by designing an “Uber for ambulances”? Would they disrupt the industry by targeting a narrow segment and winning over patients and advocacy groups? Would they partner the insurance companies that pay for ambulance services? Or would they licence their intellectual property to service suppliers like Motorola?
Writing for Harvard Business review, Joshua Gans, Erin L Scott, and Scott Stern outline four distinct strategies for startups – a compass by which to navigate your startup to success.
If the temptation is to follow Richard Branson’s advice: “Screw it, just do it,” ignore it – at least for as long as it takes to consider your options. Shai Agassi spent a fortune on swappable batteries for the nascent electric-car market but it was Elon Musk, whose “more deliberative, stepwise approach to developing an integrated, highly reliable Tesla turned out to be a smarter strategy”.
If you rush in before considering your options, you could be missing a less obvious, but ultimately more successful way of capitalising on your creative ideas:
Will you collaborate or compete? The strategy choice you need to make lies within one camp or the other, but not both.
1) Collaborate– and you may gain access to the resources you need to make a success of your project, but dealing with powerful incumbents can be a weak hand to play, and unless you have the capital to invest in and protect your IP rights, you’ll almost certainly end up with a smaller piece of the pie than you might like.
2) Compete– and you’ll have all the freedom to do what you want with your new product or service, but you’ll be up against existing players with the resources to squash you before you can disrupt their industry. Choose this route and you’ll need to be quick. Operate off the incumbents’ radars at first, then break things fast before the slumbering giants awake to the threat you pose.
On each side of the division between competition and collaboration lie two distinct strategies. On the competition side, you can try to disrupt existing players, or alternatively, create a new value chain that makes them obsolete. If you choose to collaborate, your choice is to partner with firms already operating in the market, or bullet proof your IP rights and license them to the big players.
1) Intellectual property strategy. When Dolby patented its noise-reduction technology in the mid 1960s, it put itself in a market-leading position it has maintained for over 50 years And while the firm’s technology has made its mark on films from Kubrick’s Clockwork Orange through to Star Wars, the company itself has little to do with film directors and music composers. Dolby is an innovation factory that “licenses its output to many product developers and manufacturers, including Sony, Bose, Apple and Yamaha”.
If you choose this strategy, you need deep coffers to invest in the R&D required to continuously evolve your products, as well as to pay for the legal expertise necessary to develop powerful defences for your intellectual property.
2) Value chain. Founded in the mid-1990s, market-leading internet grocer Peapod initially worked with Chicago food supplier Jewel-Osco to generate market knowledge, before partnering with supermarket chain Stop & Shop. Firms like this focus on one part of the supply chain and seek to develop the level of expertise that makes them “preferred suppliers”.
With this strategy, the teams leading the sale and integration of services with the incumbent partner company need to be outstanding. You’ve got to be able to supply products and services to your partners that nobody else can match.
3) Disrupt. The now defunct Blockbuster video chain initially dismissed Netflix’s postal DVD rental service as too slow to meet the customer’s need for immediate gratification. But the new company had targeted the “long tail” of low-cost content because it gave them the information they needed to build a relationship with customers through its recommendation engine. It was the beginning of a new way of renting movies that was soon to make Blockbuster’s video stores obsolete.
Attempting to redefine established value chains and the companies that dominate those chains means you need to get ahead and stay there. Stay off the radar while you test your product in the marketplace, rapidly improving it with each iteration, until you’ve honed it to the lethal edge required to scythe through an unexpecting opposition. It’s about going from niche to giant killer: you’re lean and adaptable, focused on growth, and you and your success-hungry team relish the fight.
4) The architectural strategy. Facebook committed itself to not charging users while the “dynamics of social media would lock them into the platform”. Google’s “don’t be evil” motto helped it “achieve dominance without the pushback that had plagued IBM and Microsoft”. By building a popular platform but continuing to control the core technology, you build and control a new value chain, but as a strategy it’s extremely risky at best, and at worst unachievable.
HOW TO CHOOSE
Splitting strategy into a four-directional compass gives you the opportunity to explore your options, discovering the advantages and stumbling blocks of each as it relates to your own startup. Your eventual choice needs to match your firm’s skills and resources with your sense of purpose.
For RapidSOS all four directions were feasible – but the firm’s mission was to improve services for patients, and that’s what led it to go for a disruptive approach. The founders’ “passion and purpose allowed them to win over patient groups and stakeholders throughout the emergency response sector, enabling RapidSOS to roll out its technology to the broader market over two years”.
Remember: the strategy you choose is the strategy you have to live with. A wise choice is a considered one which matches your competitive or collaborative goals with your startup’s mission or higher purpose.