Strategy for Start-ups: The Entrepreneurial Strategy Compass
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:
- 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.
- 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
- 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.
- 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:
- Fill the quadrants that are feasible with strategic options, gathering information and perhaps doing some small experiments.
- 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.
- 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
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.