Business strategy is a choice of direction to grow a company’s value in the marketplace. While the strategy might seem all about techniques, objectivity, and bound to the real world.
It is also a matter of philosophy, in short, how the company interprets the real world and thinks it will develop in the future.
An entry strategy is a way an organization can access a market based on its structure. The entry strategy will highly depend on the definition of potential customers in that market and whether those are ready to get value from your potential offering. It all starts by developing your smallest viable market.
A market entry will vary from the company’s size or existing products. If, for instance, a company like Microsoft or Google enters new markets, they will not do it as niche players.
Instead, they might build, acquire, or grow products that have the potential to gain a large customer/user base, quickly.
However, if we instead take into account a business strategy for startups, therefore, companies entering a market as a new player, there might be three primary ways to do it:
When entering the market, as a startup you can use different approaches. Some of them can be based on the product, distribution, or value. A product approach takes existing alternatives and offers only the most valuable part of that product. A distribution approach cuts out intermediaries from the market. A value approach offers only the most valuable part of the experience.
Breaking apart existing offerings
One way is to look at the product and unbundle it compared to what existing players are doing.
This process looks at the current product offering in the marketplace and makes the product better and more convenient.
Take the case of Apple turning the music industry upside down, by offering single songs on its iTunes (a model then made obsolete by Spotify as it offered all songs users wanted with a single subscription.
Therefore, the entry player will identify the part of the distribution network that can be substituted.
Take the case of OTAs (Booking, TripAdvisor, or else) removing or at least making the physical agency irrelevant by offering a wide variety of comparisons online, on their platforms.
Breaking apart the value chain
Another entry strategy is that of identifying within the customer journey, the most valuable part, to offer that alone.
Perhaps, Birchbox offering a subscription service to provide customers samples of pre-selected cosmetic products, remove the hardest part from the value chain (select those products in the first place) while providing what might be perceived as the most valuable part (high-quality pre-selected cosmetics delivered straight to the customer, thus removing the most challenging part).
A microniche is a subset of potential customers within a niche. In the era of dominating digital super-platforms, identifying a microniche can kick off the strategy of digital businesses to prevent competition against large platforms. As the microniche becomes a niche, then a market, scale becomes an option.
In that sense, companies entering several markets will opt initially for a niche, or a small segment of the industry, to validate the idea, gain traction, and evolve their business models from there.
For instance, when PayPal entered the market, it didn’t do it by trying to bring in as many customers from all over the place.
It simply found out that many of its power users were on eBay, and it surfed, what it was at the time a giant.
As we’ll see by the end of the article, eventually eBay acquired PayPal, and by 2015, it spun it off. Today PayPal is worth much more than eBay.
Growth and market share acquisition
Once companies have entered markets successfully, it’s the turn of figuring out growth, to gain a competitive advantage.
According to Michael Porter, a competitive advantage, in a given industry could be pursued in two key ways: low cost (cost leadership), or differentiation. A third generic strategy is a focus. According to Porter a failure to do so would end up stuck in the middle scenario, where the company will not retain a long-term competitive advantage.Growth marketing is a process of rapid experimentation, which in a way has to be “scientific” by keeping in mind that it is used by startups to grow, quickly. Thus, the “scientific” here is not meant in the academic sense. Growth marketing is expected to unlock growth, quickly and with an often limited budget.
Business model renewal
Once the company has reached a mature stage with its business model, it gets the time to renew it.
This renewal can happen in several ways. Some of them can be through:
Integration and consolidation: vertical or horizontal
Horizontal integration refers to the process of increasing market shares or expanding by integrating at the same level of the supply chain, and within the same industry. Vertical integration happens when a company takes control of more parts of the supply chain, thus covering more parts of it.
Placing bets
Alphabet made $148.95B from Google search and others, $31.7 billion from the Network members, £28.8 billion from YouTube Ads, $19.2 billion from the Cloud, and $28 billion from other sources (Google Play, Hardware devices, and other services).
An example of placing bets on the future is how companies like Google, have within their portfolio, a set of companies, which product and potential business model (many of them are still at the development stage) is in part adjacent (like self-driving that can be used also to improve existing products) or, for now, disjoined.
Those bets might become a whole new business model, company, or spin-off, that might become an entity on its own.
For instance, back in 2015, eBay spun off PayPal. Today PayPal has a market cap of over $200 billion, compared to eBay’s over $40 billion market cap.
Key Highlights
Philosophical and Practical Aspect: Business strategy is not just about practical techniques but also involves a philosophical perspective on how a company interprets the world and envisions its future development.
Three Core Parts of Business Strategy:
Market Entry: Involves accessing a market based on its structure and potential customer base. Starts with developing the smallest viable market and can vary based on the company’s size and existing products.
Growth and Market Share Acquisition: Focuses on expansion and gaining a competitive advantage through cost leadership, differentiation, or focus strategies.
Business Model Renewal: Happens when a mature company renews its business model through integration, consolidation, placing strategic bets, or other methods.
Market Entry Strategies for Startups:
Product Approach: Offering the most valuable part of an existing product, improving on existing alternatives.
Distribution Approach: Removing intermediaries from the distribution network, making it more efficient and direct.
Value Approach: Offering the most valuable part of the customer experience, streamlining the value chain.
Examples of Strategy Approaches:
Breaking Apart Existing Offerings: Apple revolutionizing the music industry with iTunes and Spotify’s subscription-based music streaming model.
Breaking Apart Distribution Network: Online Travel Agencies (OTAs) offering comparisons and booking services, rendering physical agencies less relevant.
Breaking Apart Value Chain: Birchbox providing pre-selected cosmetic product samples through a subscription model, removing the complexity of product selection.
Microniche Strategy: Identifying a subset of potential customers within a niche to kickstart digital business strategies and prevent competition with large platforms. As the microniche grows into a niche and market, scalability becomes feasible.
Growth and Market Share Acquisition:
Pursuing competitive advantage through low-cost, differentiation, or focus strategies according to Michael Porter.
Growth marketing involves rapid experimentation for rapid growth within limited budgets.
Business Model Renewal:
Integration and Consolidation: Horizontal (increasing market share within the same industry) and vertical (controlling more of the supply chain) integration.
Placing Bets: Companies like Google have a portfolio of adjacent or disjoined businesses that could become new business models, companies, or spin-offs.
Strategic Approach
Description
Key Objectives
Key Benefits
Common Challenges
Market Entry
Market entry involves entering a new market based on its structure and potential customer base. It often begins by targeting the smallest viable market and may vary depending on the company’s size and existing products.
1. Access a new market.
1. Opportunities for revenue and customer expansion.
1. Market research and entry strategies are essential.
Growth and Market Share Acquisition
Growth and market share acquisition strategies focus on expanding and gaining a competitive advantage through cost leadership, differentiation, or focus strategies.
1. Expand market presence.
1. Increased market share and competitiveness.
1. Requires clear differentiation and competitive strategies.
Business Model Renewal
Business model renewal occurs when a mature company revitalizes its business model through integration, consolidation, strategic bets, or other methods. It aims to adapt to changing market conditions and rejuvenate growth.
1. Adapt to market changes and renew business.
1. Increased resilience and competitiveness. 2. Potential for innovation and growth.
1. May require significant organizational and structural changes.
Business model innovation is about increasing the success of an organization with existing products and technologies by crafting a compelling value proposition able to propel a new business model to scale up customers and create a lasting competitive advantage. And it all starts by mastering the key customers.
The innovation loop is a methodology/framework derived from the Bell Labs, which produced innovation at scale throughout the 20th century. They learned how to leverage a hybrid innovation management model based on science, invention, engineering, and manufacturing at scale. By leveraging individual genius, creativity, and small/large groups.
According to how well defined is the problem and how well defined the domain, we have four main types of innovations: basic research (problem and domain or not well defined); breakthrough innovation (domain is not well defined, the problem is well defined); sustaining innovation (both problem and domain are well defined); and disruptive innovation (domain is well defined, the problem is not well defined).
That is a process that requires a continuous feedback loop to develop a valuable product and build a viable business model. Continuous innovation is a mindset where products and services are designed and delivered to tune them around the customers’ problem and not the technical solution of its founders.
Disruptive innovation as a term was first described by Clayton M. Christensen, an American academic and business consultant whom The Economist called “the most influential management thinker of his time.” Disruptive innovation describes the process by which a product or service takes hold at the bottom of a market and eventually displaces established competitors, products, firms, or alliances.
In a business world driven by technology and digitalization, competition is much more fluid, as innovation becomes a bottom-up approach that can come from anywhere. Thus, making it much harder to define the boundaries of existing markets. Therefore, a proper business competition analysis looks at customer, technology, distribution, and financial model overlaps. While at the same time looking at future potential intersections among industries that in the short-term seem unrelated.
Technological modeling is a discipline to provide the basis for companies to sustain innovation, thus developing incremental products. While also looking at breakthrough innovative products that can pave the way for long-term success. In a sort of Barbell Strategy, technological modeling suggests having a two-sided approach, on the one hand, to keep sustaining continuous innovation as a core part of the business model. On the other hand, it places bets on future developments that have the potential to break through and take a leap forward.
Sociologist E.M Rogers developed the Diffusion of Innovation Theory in 1962 with the premise that with enough time, tech products are adopted by wider society as a whole. People adopting those technologies are divided according to their psychologic profiles in five groups: innovators, early adopters, early majority, late majority, and laggards.
In the TED talk entitled “creative problem-solving in the face of extreme limits” Navi Radjou defined frugal innovation as “the ability to create more economic and social value using fewer resources. Frugal innovation is not about making do; it’s about making things better.” Indian people call it Jugaad, a Hindi word that means finding inexpensive solutions based on existing scarce resources to solve problems smartly.
A consumer brand company like Procter & Gamble (P&G) defines “Constructive Disruption” as: a willingness to change, adapt, and create new trends and technologies that will shape our industry for the future. According to P&G, it moves around four pillars: lean innovation, brand building, supply chain, and digitalization & data analytics.
In the FourWeekMBA growth matrix, you can apply growth for existing customers by tackling the same problems (gain mode). Or by tackling existing problems, for new customers (expand mode). Or by tackling new problems for existing customers (extend mode). Or perhaps by tackling whole new problems for new customers (reinvent mode).
An innovation funnel is a tool or process ensuring only the best ideas are executed. In a metaphorical sense, the funnel screens innovative ideas for viability so that only the best products, processes, or business models are launched to the market. An innovation funnel provides a framework for the screening and testing of innovative ideas for viability.
Tim Brown, Executive Chair of IDEO, defined design thinking as “a human-centered approach to innovation that draws from the designer’s toolkit to integrate the needs of people, the possibilities of technology, and the requirements for business success.” Therefore, desirability, feasibility, and viability are balanced to solve critical problems.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
