Strategy for Start-ups: The Entrepreneurial Strategy Compass

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Start-up Companies > Best Practices > Strategy for Start-ups: The Entrepreneurial Strategy Compass

Strategy for Start-ups: The Entrepreneurial Strategy Compass
Jaap de Jonge, Editor, Netherlands
In order to help entrepreneurs choose the right strategy by guiding their imagination and commitment toward the realization of their idea(s), Joshua Gans, Erin L. Scott and Scott Stern developed a very interesting new framework they named: "The Entrepreneurial Strategy Compass".

Their compass categorizes strategic opportunities for new business ideas along 2 axes:
  • Attitude toward incumbents*: Collaborate or Compete?
  • Attitude toward the innovation: Build a moat** or Storm a hill?
Confronting these 2 dimensions with each other results in a matrix with 4 distinct strategies:


  1. INTELLECTUAL PROPERTY STRATEGY: Maintain control of the innovation and find a way to create value within the existing marketplace. Focus on product leadership, idea creation (research) and development and avoid the costs of a large operation/organization.
    Examples: Dolby, many biotechnology start-ups, Qualcomm, Getty Images.
  2. VALUE CHAIN STRATEGY: Focus on creating value for partners in the existing value chain. Execute quickly. Building a very strong management team is crucial as is developing some unrivaled core competence or capability.
    Examples: Foxconn, Peapod
  3. ARCHITECTURAL STRATEGY: Create and control a new value chain, often using a platform business. Protect intellectual property. Capitalize on first-mover advantage or deploy a second-mover strategy.
    Examples: Google, Facebook.
  4. DISRUPTION STRATEGY: Compete directly with the incumbents. Take them by surprise with fast execution. Usually start with a niche strategy. This allows the firm to establish credibility and fix initial technology issues.
    Examples: Netflix, Rent the Runway.
APPLYING THE ENTREPRENEURIAL STRATEGY COMPASS
How should a startup choose the best option out of the 4 mentioned? The authors recommend a process with 3 major steps:
  1. Fill the quadrants that are feasible with strategic options, gathering information and perhaps doing some small experiments.
  2. Make the actual choice by identifying per quadrant which customers to target, technologies to focus on, the identity to assume, and whom to compete and partner with and how. If there is more than one viable option, this should be regarded a luxury problem, and the entrepreneurs should then remember the original purpose of their entire venture.
  3. Commit to the choice that has been made.
In my opinion the Entrepreneurial Strategy Compass is an excellent and useful instrument to guide the numerous strategic decisions a startup has to make regarding its customers, competitors and partners, technologies to use, corporate identity to assume. At least to some extent. Even if in reality the majority of entrepreneurial strategies are emergent and based on trial-and-error and learning by doing, as Carl Schramm argues rightfully in his article “It’s not about the framework”.

Compare: Startup Business Strategy Frame.

Sources:
Joshua Gans, Erin L. Scott and Scott Stern, "Strategy for Start-ups", HBR May-June 2018, pp. 44-51.
Carl Schramm, "It’s not about the framework", HBR May-June 2018, pp. 52-54.

* Current players, holders of a position in the market
** Historic water barrier for defense purposes, typically surrounding a castle.
 

 
Entrepreneurial Strategy Compass and the Customers
srinivas, Lecturer, India, Member
This framework focuses on the strategy for the entrepreneur and does not address the customer value.
We could thus create a prototype which delivers value for the entrepreneur, however if the same is not put to test in order to know the perceived value for the customers it is a waste of time…
We need to do something more in order to address the value for the customer.
 

 
Customers in Entrepreneurial Strategy Compass
Jaap de Jonge, Editor, Netherlands
@Srinivas: You're right to mention that the customer side of things is not the focus of this compass. While having a product or service that offers customer value is obviously very important, certainly for start-ups.
But it is not unusual for management methods to have a limited application era and/or to be based on limiting assumptions.
The intention of the compass is not to sort out the best customer solution or to find way to optimize customer value. There are other management tools addressing that. For example, take a look at: 30 Elements of Customer Value or Customer Experience Management or Sensemaking or Jobs to be Done.
The compass is meant to be a tool to somewhat guide the many decisions an entrepreneur has to make in the early days before founding his venture.
 

 
Strategy Compass - Practicality
Rahatullah, Effat University, Professor, Saudi Arabia, Member
An excellent illustration and tool to cope with the complexity of the many strategic decisions entrepreneurs have to make.
I agree it can be further enhanced by adding value triggers. In contemporary scenarios the value matters most, as the customer has become increasingly conscious and savvy to value. And brands have made it all the more possible.
 

     
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