Breaking Down Three Types Of Business Strategy

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.

There are many ways to break down business strategy.

Let’s perhaps, start with a simple break-down of business strategy, in three core parts:

Market entry: context-based

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.

Breaking apart the distribution network

A second way is through disintermediation.

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

Google (now Alphabet) primarily makes money through advertising. The Google search engine, while free, is monetized with paid advertising. In 2021 Google’s advertising generated over $209 billion (beyond Google Search, this comprises YouTube Ads and the Network Members Sites) compared to $257 billion in net sales. Advertising represented over 81% of net sales, followed by Google Cloud ($19 billion) and Google’s other revenue streams (Google Play, Pixel phones, and YouTube Premium).

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.

Connected Business Frameworks

Porter’s Five Forces

Porter’s Five Forces is a model that helps organizations to gain a better understanding of their industries and competition. Published for the first time by Professor Michael Porter in his book “Competitive Strategy” in the 1980s. The model breaks down industries and markets by analyzing them through five forces.

SWOT Analysis

A SWOT Analysis is a framework used for evaluating the business‘s Strengths, Weaknesses, Opportunities, and Threats. It can aid in identifying the problematic areas of your business so that you can maximize your opportunities. It will also alert you to the challenges your organization might face in the future.

BCG Matrix

In the 1970s, Bruce D. Henderson, founder of the Boston Consulting Group, came up with The Product Portfolio (aka BCG Matrix, or Growth-share Matrix), which would look at a successful business product portfolio based on potential growth and market shares. It divided products into four main categories: cash cows, pets (dogs), question marks, and stars.

Balanced Scorecard

First proposed by accounting academic Robert Kaplan, the balanced scorecard is a management system that allows an organization to focus on big-picture strategic goals. The four perspectives of the balanced scorecard include financial, customer, business process, and organizational capacity. From there, according to the balanced scorecard, it’s possible to have a holistic view of the business.

Blue Ocean Strategy 

A blue ocean is a strategy where the boundaries of existing markets are redefined, and new uncontested markets are created. At its core, there is value innovation, for which uncontested markets are created, where competition is made irrelevant. And the cost-value trade-off is broken. Thus, companies following a blue ocean strategy offer much more value at a lower cost for the end customers.

GAP Analysis

A gap analysis helps an organization assess its alignment with strategic objectives to determine whether the current execution is in line with the company’s mission and long-term vision. Gap analyses then help reach a target performance by assisting organizations to use their resources better. A good gap analysis is a powerful tool to improve execution.

Scenario Planning

Businesses use scenario planning to make assumptions about future events and how their respective business environments may change in response to those future events. Therefore, scenario planning identifies specific uncertainties – or different realities and how they might affect future business operations. Scenario planning attempts to better strategic decision-making by avoiding two pitfalls: underprediction, and overprediction.

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