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 (or go-to-market) requires initial traction (also in a niche market).
- Growth and market share acquisition, requiring expansion (from niche to broader).
- And business model renewal, requiring integration, consolidation, or innovation (you either acquire, merge, or place bets).
Market entry: context-based
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:
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).
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.
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
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.
Read Next: Business Model Innovation, Business Models.