Business strategy is a choice of direction to grow a company’s value in the marketplace. At the same time, it might seem all about techniques, objectivity, and being bound to the real world.
It is also a matter of philosophy, in short, how the founder 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:
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Market entry (or go-to-market) requires initial traction (also in a niche market).
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Growth and market share acquisition, requiring expansion (from niche to broader).
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And business model renewal requires integration, consolidation, or innovation (you acquire, merge, or place bets).
Let me show you some of these. At the end, you will find a short video lecture about three different strategies for growing a startup.
Those are highly relevant now, so go to the end of this newsletter to find them out!
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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 depending on the company’s size or existing products. If, for instance, a company like Microsoft or Google enters new markets, they will not do so as niche players.
Instead, they might build, acquire, or grow products that quickly have the potential to gain a large customer/user base.
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 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 provides only the most helpful part of the experience.
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, making 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.
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 otherwise) that remove or at least make the physical agency irrelevant by offering various comparisons online on their platforms.
Another entry strategy is identifying the most valuable part of the customer journey to offer that alone.
Perhaps Birchbox offers a subscription service to provide customers with samples of pre-selected cosmetic products.
This would remove the most challenging part from the value chain (selecting 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 initially opt for a niche or a small segment of the industry to validate the idea, gain traction, and evolve their business models.
For instance, when PayPal entered the market, it didn’t do so by trying to attract as many customers as possible.
It simply discovered 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, eBay eventually acquired PayPal and spun it off in 2015. Today, PayPal is worth much more than eBay.
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Business Strategy Essence:
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Business strategy is the overarching plan a company adopts to achieve its goals and create value in the market.
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While it involves practical techniques, it’s also shaped by the founder’s vision and interpretation of how the market will evolve in the future.
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Business strategy is not just about making tactical decisions; it’s a philosophical approach to guiding the company’s growth.
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Three Core Strategy Parts:
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Market Entry: This initial phase involves gaining traction, often in a niche market where the company can establish its presence. This could mean targeting a specific segment of the market where the company’s value proposition is particularly relevant.
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Growth and Market Share: Once the company gains a foothold, it focuses on expanding its market presence and capturing a larger share of the market. This involves moving beyond the niche and broadening the customer base.
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Business Model Renewal: As the market evolves, a company must adapt its business model. This might involve integrating with other businesses, consolidating operations, or innovating to stay ahead of changing trends.
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Market Entry Strategies:
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Product Approach: This strategy involves offering a more focused and valuable part of an existing product compared to competitors. By honing in on the most valuable aspect, companies can attract customers seeking specific benefits.
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Distribution Approach: Disintermediation is about removing unnecessary intermediaries from the distribution network. This can result in cost savings and more direct relationships with customers. Companies might leverage digital platforms to achieve this.
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Value Approach: This strategy focuses on providing the most valuable part of the customer experience, often addressing pain points or enhancing convenience. By simplifying and streamlining the process, companies can attract customers seeking efficiency.
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Entering the Market as a New Player:
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Startups often start by targeting niches or specific segments of the market. This approach allows them to validate their ideas, gain initial traction, and refine their offerings based on early feedback.
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PayPal’s success story illustrates how startups can leverage existing platforms or markets to gain traction. By targeting eBay’s power users, PayPal found a niche where its payment solution was highly relevant.
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Ciao!
With Massive ♥️ Gennaro, The Business Engineer
